10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal quarter ended June 30, 2020

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from                   to                   

STEM HOLDINGS, INC.

(Exact name of small business issuer as specified in its charter)

Nevada	000-55751	61-1794883
(State of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2201 NW Corporate Blvd, Suite 205, Boca Raton, FL 33431

(Address of principal executive offices) (Zip code)

Issuer’s telephone number: (561) 237-2931

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock par value $0.001	STMH	OTCQX

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. [  ]

Large Accelerated Filer [  ]	Accelerated Filer [  ]
Non-accelerated Filer [X]	Smaller Reporting Company [X]
	Emerging Growth Company [X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

There were 65,154,028.006 shares outstanding of registrant’s common stock, par value $0.001 per share, as of August 14, 2020.

Transitional Small Business Disclosure Format (check one): Yes [  ] No [X]

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and September 30, 2019	3
	Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended June 30, 2020 and June 30, 2019	4
	Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months ended June 30, 2020 and June 30, 2019	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and June 30, 2019	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
	PART II
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	39
Item 6.	Exhibits	39
SIGNATURES		40

2

PART I

ITEM 1. FINANCIAL STATEMENTS

STEM HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except for share and per share amounts)

	June 30,			September 30,
	2020			2019*
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	1,913		$	3,339
Accounts receivable, net of allowance for doubtful accounts		694			427
Note receivable		600			-
Inventory		1,353			611
Prepaid expenses and other current assets		457			491
Total current assets		5,017			4,868
Property and equipment, net		16,620			14,706
Investment in equity method investees		287			1,771
Investments in affiliates		1,951			1,827
Deposits and other assets		130			47
Note receivable, long term		355			-
Intangible assets, net		10,360			6,316
Goodwill		11,613			1,070
Due from related party		55			492
Total assets		46,388		$	31,097
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses		2,225			1,082
Convertible notes, net		5,996			1,888
Short term notes and advances		2,951			3,384
Acquisition notes payable		679			708
Contingent acquisition liability		1,084			-
Due to related party		666			-
Derivative liability		586			158
Warrant liability		448			283
Total current liabilities		14,635			7,503
Long-term debt, mortgages		3,085			-
Total liabilities		17,720			7,503
Commitments and contingencies (Note 16)		-			-
Shareholders’ equity
Preferred stock, Series A; $0.001 par value; 50,000,000 shares authorized, none outstanding as of June 30, 2020 and September 30, 2019		-			-
Preferred stock, Series B; $0.001 par value; 50,000,000 shares authorized, none outstanding as of June 30, 2020 and September 30, 2019		-			-
Common stock, $0.001 par value; 300,000,000 shares authorized; 66,616,526 and 52,254,941 shares issued, issuable and outstanding as of June 30, 2020 and September 30, 2019, respectively		67			52
Additional paid-in capital		75,369			61,202
Accumulated deficit		(48,952	)		(40,384	)
Total Stem Holdings stockholder’s equity		26,484			20,870
Noncontrolling interest		2,184			2,724
Total shareholders’ equity		28,668			23,594
Total liabilities and shareholders’ equity	$	46,388		$	31,097

* Derived from audited information

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

3

STEM HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except for share and per share amounts)

	For the Three Ended June 30,						For the Nine Months Ended June 30,
	2020			2019			2020			2019
Gross Revenue	$	6,696		$	621		$	10,315		$	1,314
Discounts and returns		1,498			-			1,498			-
Net Revenue		5,198			621			8,817			1,314
COGS		3,420			258			6,062			258
Gross Profit		1,778			363			2,755			1,056
Operating expenses:
Consulting fees		124			115			2,031			297
Professional fees		257			418			1,780			1,269
General and administration		2,176			2,948			6,234			7,513
Total operating expenses		2,557			3,481			10,045			9,079
Loss from operations		(779	)		(3,118	)		(7,290	)		(8,023	)
Other income (expenses), net
Interest expense		(753	)		(306	)		(2,024	)		(1,105	)
Inducement cost		-			-			-			(824	)
Change in fair value of derivative liability		(570	)		-			(428	)		-
Change in fair value of warrant liability		969			-			754			-
Foreign currency exchange gain		187			-			208			-
Gain on forgiveness of debt		-			40			-			40
Total other income (expense)		(167	)		(266	)		(1,490	)		(1,889	)
Loss from equity method investees		(1	)		(309	)		(253	)		(467	)
Net loss	$	(947	)	$	(3,693	)	$	(9,033	)	$	(10,379	)
Net loss attributable to non-controlling interest		(121	)		-			(466	)		-
Net loss attributable to Stem Holdings	$	(826	)	$	(3,693	)	$	(8,567	)	$	(10,379	)
Net loss per share, basic and diluted	$	(0.01	)	$	(0.10	)	$	(0.15	)	$	(0.48	)
Weighted-average shares outstanding, basic and diluted		66,410,900			36,221,702			58,762,599			21,667,002

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4

STEM HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT

OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except for share and per share amounts

													Total Stem
	Common Stock						Additional Paid-in			Accumulated			Holdings Shareholders’			Non-Controlling			Total Shareholders’
	Shares			Amount			Capital			Deficit			Equity			Interest			Equity
Balance as of September 30, 2019		52,254,941		$	52		$	61,202		$	(40,384	)	$	20,870		$	2,724		$	23,594
Issuance of common stock in connection with consulting agreement		5,000			-			4			-			4			-			4
Issuance of common stock in connection with asset acquisitions		394,270			-			394			-			394			-			394
Stock based compensation		100,000			1			497			-			498			-			498
Net loss		-			-			-			(3,077	)		(3,077	)		(235	)		(3,312	)
Balance as of December 31, 2019		52,754,211		$	53		$	62,097		$	(43,461	)	$	18,689		$	2,489		$	21,178
Issuance of common stock in connection with consulting agreement		970,416			1			1,548			-			1,549			-			1,549
Cancellation of common stock in connection with consulting agreement		(700,000	)		(1	)		(699	)		-			(700	)		-			(700	)
Issuance of common stock in connection with asset acquisitions		12,681,008			13			10,009			-			10,022			-			10,022
Stock based compensation		303,756			-			47			-			47			-			47
Issuance of common stock related to interest on convertible notes		202,350			-			121			-			121			-			121
Derivatives					-			431			-			431			-			431
Net loss											(4,665	)		(4,665	)	$	(110	)		(4,775	)
Balance as of March 31, 2020		66,211,741		$	66		$	73,554		$	(48,126	)	$	25,494		$	2,379		$	27,873
Issuance of common stock in connection with share exchange agreement		386,035			-			196			-			197			(74	)		124
Stock based compensation		18,750			-			6			-			6			-			6
Consolidated Ventures of Oregon equity		-			-			1,613			-			1,613			-			1,613
Other		-			-			-			-			-			-			(1	)
Net loss		-			-			-			(826	)		(826	)		(121	)		(947	)
Balance as of June 30, 2020		66,616,526		$	66		$	75,369		$	(48,952	)	$	26,484		$	2,184		$	28,668

												Total Stem
	Common Stock					Additional Paid-in			Accumulated			Holdings Shareholders’			Non-Controlling		Total Shareholders’
	Shares			Amount		Capital			Deficit			Equity			Interest		Equity
Balance as of September 30, 2018		10,177,496		$	10	$	19,810		$	(11,533	)	$	8,287		$	-	$	8,287
Common stock issued in connection with conversion of notes payable		1,430,556			1		2,574			-			2,575			-		2,575
Exercise of stock options		(15,662	)		-		-			-			-			-		-
Yerba Buena acquisition		1,931,506			2		4,440			-			4,442			-		4,442
Asset Purchase Agreement - 399 & 451 Wallis St and Applegate		457,191			-		978			-			979			-		979
Investment in YMY		187,500			-		450			-			450			-		450
Canaccord fee		16,666			-		35			-			35			-		35
Inducement cost to convert convertible notes		-			-		824			-			824			-		824
Debt discount for warrants		-			-		84			-			84			-		84
Issuance of Canaccord warrants		-			-		483			-			483			-		483
Stock based compensation		669,233			1		1,746			-			1,747			-		1,747
Net loss		-			-		-			(4,167	)		(4,167	)		-		(4,167	)
Balance as of December 31, 2018		14,854,486		$	15	$	31,424		$	(15,700	)	$	15,739		$	-	$	15,739
Stock based compensation		493,329			1		1,289			-			1,289			-		1,289
Common stock issued for investment (South African Ventures)		8,250,000			8		14,017			-			14,025			-		14,025
Debt discount for warrants		-			-		1,027			-			1,027			-		1,027
Net loss		-			-		-			(2,793	)		(2,793	)		-		(2,793	)
Balance as of March 31, 2019		23,597,815		$	24	$	47,757		$	(18,493	)	$	29,287		$	-	$	29,287
Stock Based Compensation		886,929			1		1,711			-			1,712			-		1,712
Common Stock issued for Investment (West Coast Ventures)		2,500,000			3		4,433			-			4,436			-		4,436
Common Stock issued for Acquisition (Yerba Buena)		560,760			1		(580	)		-			(579	)		-		(579	)
Common Stock issued for Related Party Acquisition (CVO)		3,173,793			3		-			-			3			-		3
Common Stock issued for Related Party Acquisition (OPCO)		9,326,207			9		-			-			9			-		9
Common Stock to be issued for officers employment agreement		1,600,000			1		2,811			-			2,812			-		2,812
Net loss		-			-		-			(3,693	)		(3,693	)		-		(3,693	)
Balance - June 30, 2019		41,645,504		$	42	$	56,132		$	(22,186	)	$	33,987		$	-	$	33,987

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

STEM HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the Nine Months Ended
	June 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(9,033	)	$	(10,379	)
Equity method investee losses		253			467
Net loss before equity method investment		(8,780	)		(9,912	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,913			4,675
Depreciation and amortization		1,632			699
Non-cash interest		953			781
Convertible notes inducement expense		-			824
Change in fair value of derivative liability		(326	)		-
Foreign currency translation adjustment		(176	)		-
Other		(317	)		-
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts		267			(568	)
Prepaid expenses and other current assets		539			(73	)
Inventory		(163	)		-
Other assets		(83	)		-
Accounts payable and accrued expenses		488			159
Deferred revenue		-			(702	)
Net cash used in operating activities		(4,053	)		(4,117	)
Cash flows from investing activities
Purchase of property and equipment		(433	)		(905	)
Advances to related entities		(955	)		9,550
Return of cash for equity method investees		229			(350	)
Cash acquired in acquisition, net of cash transferred		349			(218	)
Project costs		-			(1,479	)
Related party advances and repayments received		60			330
Related party advances made		-			(830	)
Investment in affiliates		-			(27	)
Net cash used in investing activities		(750	)		6,071
Cash flows from financing activities
Proceeds from advance from NVDRE		-			300
Proceeds from notes payable and advances		4,596			150
Proceeds from the convertible notes, net of fees paid		-			3,058
Other		81			-
Cash paid from loan fees		-			(103	)
Repayments of notes payable		(1,300	)		(344	)
Net cash (used in) provided by financing activities		3,377			3,061
Net (decrease) increase in cash and cash equivalents		(1,426	)		5,015
Cash and cash equivalents at the beginning of the period		3,339			761
Cash and cash equivalents at the end of the period	$	1,913		$	5,776
Supplemental disclosure of cash flow information:
Cash paid for interest	$	421		$	-
Supplemental disclosure of noncash activities:
Financed insurance	$	327		$	266
Stock issued for services capitalized	$	-		$	4,507
Conversion of debt to equity	$	121		$	2,575
Transfer of deposit to fixed assets	$	-		$	126
Deposit YMY stock	$	-		$	450
Deposit Yerba Oregon stock	$	-		$	4,215
Deposit CVO and OPCO stock	$	-		$	12,500
Stock acquisition of South African Ventures	$	-		$	14,025
Stock acquisition of Western Coast Ventures	$	-		$	4,435
Debt discount from warrants and beneficial conversion features	$	-		$	1,912
Projects costs paid in equity	$	-		$	978
Acquisition of Seven LV	$	14,025		$	-
Building acquired from related party with equity, net of lien acquired	$	394		$	-
Consolidation of CVO	$	1,613		$	-
Acquisition of NVDRE interest	$	386		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

6

STEM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Incorporation and Operations and Going Concern

Stem Holdings, Inc. (“Stem” or the “Company”) is a Nevada corporation incorporated on June 7, 2016. The Company is a multi-state, vertically integrated, cannabis company that purchases, improves, leases, operates and invests in properties for use in the production, distribution and sales of cannabis and cannabis-infused products licensed under the laws of the states of Oregon, Nevada, California and Oklahoma. As of June 30, 2020, Stem had ownership interests in 26 state issued cannabis licenses including nine (6) licenses for cannabis cultivation, three (3) licenses for cannabis production, five (5) licenses for cannabis processing, one (1) license for cannabis wholesale distribution, one (1) license for hemp production and ten (10) cannabis dispensary licenses.

Stem’s partner consumer brands are award-winning and nationally known, and include cultivators, TJ’s Gardens, Travis X James, and Yerba Buena; retail brands, Stem and TJ’s; infused product manufacturers, Cannavore and Supernatural Honey; and a CBD company, Dose-ology. As of June 30, 2020, the Company has acquired nine commercial properties and leased a seventh property, located in Oregon and Nevada, and has entered into leases to related entities for these properties (see Note 15). As of June 30, 2020, the buildout of these properties to support cannabis related operations was either complete or near completion.

The Company has incorporated nine wholly-owned subsidiaries –Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco, LLC, Stem Agri, LLC., Stem Group Oklahoma, Inc. and Stem Holdings Florida, Inc. Stem, through its subsidiaries, is currently in the process of finalizing the investment in and acquisition of entities that engage directly in the production and sale of cannabis, thereby transitioning from a real estate company, with a focus on cannabis industry tenants, to a vertically integrated, multi-state cannabis operating company.

The Company’s stock is publicly traded and is listed on the Canadian Securities Exchange under the symbol “STEM” and the OTCQX under the symbol “STMH”.

Going Concern

As of June 30, 2020, the Company had approximate balances of cash and cash equivalents of $1.9 million, negative working capital of $8.5 million, total stockholders’ equity of $26.4 million and an accumulated deficit of $49 million.

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

While the recreational use of cannabis is legal under the laws of certain States, where the Company has and is working towards further finalizing the acquisition of entities or investment in entities that directly produce or sell cannabis, the use and possession of cannabis is illegal under United States Federal law for any purpose, by way of Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970, otherwise known as the Controlled Substances Act of 1970 (the “ACT”). Cannabis is currently included under Schedule 1 of the Act, making it illegal to cultivate, sell or otherwise possess in the United States.

On January 4, 2018, the office of the Attorney General published a memo regarding cannabis enforcement that rescinds directives promulgated under former President Obama that eased federal enforcement. In a January 8, 2018 memo, Jefferson B. Sessions, then Attorney General of the United States, indicated enforcement decisions will be left up to the U.S. Attorney’s in their respective states clearly indicating that the burden is with “federal prosecutors deciding which cases to prosecute by weighing all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of federal prosecution, and the cumulative impact of particular crimes on the community.” Subsequently, in April 2018, President Trump promised to support congressional efforts to protect states that have legalized the cultivation, sale and possession of cannabis, however, a bill has not yet been finalized in order to implement legislation that would, in effect, make clear the federal government cannot interfere with states that have voted to legalize cannabis. Further in December 2018, the US Congress passed legislation, which the President signed on December 20, 2018, removing hemp from being included with Cannabis in Schedule I of the Act.

7

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On June 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. The existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations disruptions to our retail operations and ou9r ability to collect rent from the properties which we own, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects throughout our business. If we need to close any of our facilities or a critical number of our employees become too ill to work, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the markets in which we operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. Should the United States Federal Government choose to begin enforcement of the provisions under the Act, the Company through its wholly owned subsidiaries could be prosecuted under the Act and the Company may have to immediately cease operations and/or be liquidated upon their closing of the acquisition or investment in entities that engage directly in the production and or sale of cannabis.

Management believes that the Company has access to capital resources through potential public or private issuances of debt or equity securities. However, if the Company is unable to raise additional capital, it may be required to curtail operations and take additional measures to reduce costs, including reducing its workforce, eliminating outside consultants and reducing legal fees to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed financial statements included herein are unaudited. Such financial statements, in the opinion of management, contain all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the year ending September 30, 2020 or for any other period. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, and because of this, for further information, readers should refer to the financial statements and footnotes included in its amended Form 10-K for the fiscal year ended September 30, 2019 filed on March 19, 2020. The Company believes that the disclosures are adequate to make the interim information presented not misleading.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The most significant estimates included in these condensed consolidated financial statements are those associated with the assumptions used to value equity instruments, derivative liabilities and valuation of its long live assets for impairment testing. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable given the circumstances that exist at the time the financial statements are prepared. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

8

Principals of Consolidation

The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the outstanding voting stock. In addition, the Company consolidates entities that meet the definition of a variable interest entity (“VIE”) for which it is the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third party’s holding of equity interest is presented as noncontrolling interests in the Company’s condensed consolidated balance sheets and condensed consolidated statements of changes in stockholders’ equity. The portion of net loss attributable to the noncontrolling interests is presented as net loss attributable to noncontrolling interests in the Company’s condensed consolidated statements of operations.

In August 2016, the Company and certain shareholders of the Company entered into a “Multi Party” Agreement, in which the Company became obligated to lease or acquire three separate real estate assets, and separately, if certain events occur, additional real estate assets held by entities related to those shareholders. The Agreement also gives the Company the right of first refusal in regard to certain properties owned by the persons and entities affiliated with the parties of the Agreement so long as certain targets are met. In the quarter ended June 30, 2019, the Company issued 12,500,000 shares of its common stock (shares are held in escrow) as it is currently attempting to acquire the set of entities that include Consolidated Ventures of Oregon, LLC (“CVO”) and Opco Holdings, LLC (“Opco”) which comprise the entities within the Multi Party Agreement. In addition, the Company is also currently negotiation with the owners of certain properties contained within the Multi Party Agreement. The Company and owners of CVO and Opco have finalized their agreements, and are waiting for regulatory approval to transfer certain licenses, which has not yet occurred as of the date of this filing, or the date of these consolidated financial statements, however, the Company does believe it will complete the acquisition in the current calendar year. Should the acquisition be completed, the Company will no longer be engaged primarily in property rental operations, but will take over the operations of its primary renters, which is the cultivation, production and sale of cannabis and related productions. Because CVO and Opco are related to the Company, should the acquisition occur, it will not be accounted for as a business combination at fair value under the codification sections of ASC 805. The assets and liabilities will transfer at their historical cost and the company will include the operations of CVO and Opco for all periods presented. The Company has therefore recorded the par value of the shares issued of $12,500 as of September 30, 2019. As of September 30, 2019, the Company has consolidated the entities with the Opco Holdings Group.  As of June 30, 2020, the Company has consolidated the entities within the CVO group as it has determined that they are now material.

The accompanying unaudited condensed consolidated financial statements include the accounts of Stem Holdings, Inc. and its wholly-owned subsidiaries, Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco, LLC, Stem Agri, LLC., Stem Group Oklahoma, Inc, Stem Holdings Florida, Inc. (what about foothills, SAV and WCV)  In addition, the Company has consolidated YMY Ventures, LLC, NVDRE, Inc., Opco Holdings, Inc. and its subsidiaries  and CVO and its subsidiaries under the variable interest requirements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation.

Loss per Share

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net loss per share of common stock excludes dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net loss per share is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2020 is as follows:

Convertible notes	3,924,075
Options to purchase common stock	4,747,916
Unvested restricted stock awards	1,392,922
Warrants to purchase common stock	4,564,733
	14,629,646

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping and handling costs are included in cost of product sales.

Effective October 1, 2019, the Company adopted the requirements of ASU 2014-09 (ASC 606) and related amendments, using the modified retrospective method. The adoption of ASC 606 did not have a significant impact on the Company’s revenue recognition policy as revenues related to wholesale and retail revenue are recorded upon transfer of merchandise to the customer, which was the effective policy under ASC 605 previously.

The following policies reflect specific criteria for the various revenue streams of the Company:

Revenue is recognized upon transfer of retail merchandise to the customer upon sale transaction.

The Company’s sales environment is somewhat unique, in that once the product is sold to the customer (retail) or delivered (wholesale) there are essentially no returns allowed or warranty available to the customer under the various state laws.

Revenue related to wholesale products is recognized upon receipt by the customer.

Disaggregation of Revenue

In the three and nine months ended June 30, 2019, the Company’s revenue was primarily rental of land, buildings and improvements in nature, and governed primarily under ASC 840. In the three and nine months ended June 30, 2020, all of the Company’s rental revenue is eliminated upon consolidation, and the revenue reported is primarily from the sale of cannabis and related products accounted for under ASC 606.

The following table illustrates our revenue by type related to the three months ended June 30, 2020 and 2019:

Three Months Ended June 30,	2020		2019
Revenue
Wholesale	$	1,595	$	-
Retail		5,072		-
Rental		11		361
Other		18		260
Total revenue		6,696		621
Discounts and returns		1,498		-
Net Revenue	$	5,198	$	621

The following table illustrates our revenue by type related to the nine months ended June 30, 2020 and 2019:

Nine Months Ended June 30,	2020		2019
Revenue
Wholesale	$	2,903	$	-
Retail		7,366		-
Rental		26		1,053
Other		20		261
Total revenue		10,315		1,314
Discounts and returns		1,498		-
Net Revenue	$	8,817	$	1,314

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Recent Accounting Guidance

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in Topic 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company’s adoption of this standard on October 1, 2019 did not have a material impact on the Company’s condensed consolidated financial condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry-specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method and will be effective for the Company on October 1, 2019, at which time the Company expects to adopt the updated standard using the modified retrospective approach. The financial information included in the Company’s 2020 Form 10-K will be updated for the October 1, 2019 adoption date; this new guidance will be reflected for the first time in the Company’s 2020 Form 10-K but effective as of October 1, 2019 in that filing. However, the Company will continue to account for revenue recognition under ASC Topic 605 for interim periods in 2020 and will not be required to amend its Form 10-Q filings filed throughout 2020 to reflect the October 1, 2019 adoption date. The guidance allows for the use of one of two retrospective application methods: the full retrospective method or the modified retrospective method. The Company adopted the standard in fiscal year 2020 using the modified retrospective method. The adoption of the standard did not have a material impact on the recognition of revenue.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the Company on October 1, 2020; however, early adoption of the ASU is permitted. The Company is still finalizing its analysis but expects to recognize additional operating liabilities of approximately $1.3 million, with corresponding ROU assets of approximately the same amount as of October 1, 2020 based on the present value of the remaining lease payments.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The amendments are effective for fiscal years beginning after December 15, 2019. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements.

3. Property, Plant & Equipment

Property and equipment consist of the following (in thousands):

	June 30,			September 30,
	2020			2019
Land	$	1,451		$	1,451
Automobiles		61			61
Signage		19			19
Furniture and equipment		2,291			2,125
Leasehold improvements		3,306			3,197
Buildings and property improvements		12,628			9,719
Computer software		59			59
		19,815			16,631
Accumulated depreciation		(3,195	)		(1,925	)
Property and equipment, net	$	16,620		$	14,706

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Depreciation and amortization expense was approximately $0.5 million and $1.3 million for the three and nine months ended June 30, 2020.

Depreciation and amortization expense was approximately $0.2 million and $0.7 million for the three and nine months ended June 30, 2019.

4. Inventory

Inventory consists of the following (in thousands):

	June 30,		September 30,
	2020		2019
Raw materials	$	844	$	169
Work-in-progress		129		42
Finished goods		380		400
Total Inventory	$	1,353	$	611

The Company’s inventory is related to twelve subsidiaries of which seven are consolidated because of their VIE status, four are wholly owned by the Company and one subsidiary that is 50% owned by the Company. Raw materials and work-in-progress include the costs incurred for cultivation materials and live plants. Finished goods consists of cannabis products ready to be sold. There was no inventory reserve as of June 30, 2020 and September 30, 2019.

5. Asset Acquisitions

November 1, 2019, the Company received 100.0% interest in Empire Holdings, LLC (“EH”). EH leases its facilities to Kind Care, LLC. The Company purchased the property for $500,000 less the lien amount of $105,732 paid in kind and issued 394,270 shares of its common stock in satisfaction of the purchase price.

For the period ended June 2020, the Company acquired Seven Leaf Ventures Corp. (“7LV”), a private Alberta corporation, and its subsidiaries, pursuant to the terms of a share purchase agreement dated March 6, 2020. 7LV owns Foothills Health and Wellness, a medical dispensary, in the greater Sacramento, California area. In connection with the acquisition, the Company issued 11,999,008 shares of common stock to former shareholders of 7LV (“7LV Shares”). The Company issued an aggregate 682,000 shares and replaced 10% unsecured convertible debentures in the aggregate principal amount of C4,571,170 ($3,410,000 USD) (the “Replacement Debentures”), convertible into shares at a conversion price of C$1.67 per share at any time prior to May 3, 2021, to former holders of unsecured convertible debentures of 7LV. As part of the Acquisition, the Company assumed the obligations of 7LV with respect to the common share purchase warrants of 7LV outstanding on the closing of the acquisition, subject to appropriate adjustments to reflect the exchange ratio. Accordingly, the Company has assumed 1,022,915 common share purchase warrants (the “Warrants”), exercisable into shares at an exercise price of C$2.08 per share at any time prior to May 3, 2021, 299,975 Warrants, exercisable into shares at an exercise price of C$4.17 per share at any time prior to December 30, 2020 and 999,923 Warrants, exercisable into shares at an exercise price of C$0.50 at any time prior to October 10, 2020. Following the completion of the acquisition, 7LV is now a wholly-owned subsidiary of the Company. Certain shareholders of 7LV, who collectively held approximately 74.5% of the 7LV Shares outstanding at the closing of the acquisition, have agreed to a contractual lock-up pursuant to which such shareholders will not transfer 25% of the Company’s shares received as part of the acquisition until approximately 90 days following the acquisition by 7LV of the Sacramento California Dispensary.

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With respect to the $3,410 of convertible debt acquired in the acquisition noted above, the Company agreed to issue to the Seven Leaf debenture holders a First Supplemental Indenture dated March 6, 2020. This instrument is entered into for the purpose of providing for the issue of additional debentures in an initial aggregate principal amount of $3,410 designated as 10 percent unsecured convertible debentures under the indenture and establishing the terms, provisions, and conditions of the 10 percent debentures.

The table below represents unaudited pro forma revenue and operating loss as if the acquisition of 7LV had occurred in September 2019.

	Nine months ended June 30, 2020
Revenues	$	5,672
Operating loss	$	(25,292	)

The following table presents a preliminary allocation of the purchase price to the net assets acquired, inclusive of intangible assets, with the excess fair value recorded to goodwill.  The goodwill is not deductible for tax purposes. These estimates are provisional in nature and adjustments may be recorded in future periods as appraisals and other valuation reviews are finalized.   Any necessary adjustments will be finalized within one year from the date of acquisition (in thousands).

Consideration Paid (in thousands)
Estimated fair value of common stock issued	$	10,022
Estimated fair value of warrants issued		653
Estimated fair value of debt issued		3,410
Contingent consideration		1,084
Total consideration paid	$	15,169
Assets acquired: (in thousands)
Cash and cash equivalents	$	81
Accounts Receivable, net		-
Inventory		131
Prepaid expenses and other current assets		12
Goodwill		10,543
Intangible assets		4,474
Total assets acquired	$	15,241
Liabilities assumed: (in thousands)
Accrued expenses and other current liabilities		72
Total liabilities assumed	$	72
Net assets acquired (in thousands)	$	15,169

As part of the Seven LV acquisition, on the anniversary date of the closing, the Company shall pay the seller additional consideration for the purchase price not greater than $1,220,000 based on achieving revenue of $5,000,000 or greater. As of June 30, 2020, the Company has recorded the contingent liability in the amount of $1,084.

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As of May 2020, the Company entered into a Share Exchange Agreement with the NVDRE shareholders to exchange their shareholdings that represent 12.5 percent of NVDRE in exchange for the issuance of the Company’s common stock. The exchange amounted to the issuance of 386,035 shares of the Company’s common stock valued and recorded to investment at $196,000.

6. Notes Receivable

On January 4, 2020, the Company issued a $355,000 promissory note to Community Growth Partners Holdings, Inc., (“CGS”). CGS is a cannabis license holder in Massachusetts. Subject to the terms and conditions of the note, CGS promises to pay the Company all of the outstanding balance together with interest upon the first to occur of (i) the closing of the initial capital equity contribution made by the Company in GCS or (ii) the date that is nine months after the opening of the Great Barrington Dispensary which is planned to open sometime this summer.

On January 6, 2020, the Company issued a convertible promissory note to Community Growth Partners Holdings, Inc., (“CGS”) which will act as a line of credit. Subject to the terms and conditions of the note, CGS promises to pay the Company all of the outstanding principal together with interest on the unpaid principal balance upon the date that is twelve months after the effective date and shall be payable as follows: (a)The Company agrees to make several loans to CGS from time to time upon request of CGS in amounts not to exceed the principal sum of $2,000,000, (b) Payment of principal and interest shall be immediately available funds, (c) This note may be prepaid in whole or in part at any time without premium or penalty. Any partial prepayment shall be applied against the principal amount outstanding, (d) The unpaid principal amount outstanding under this note shall bear interest commencing upon the first advance at the rate of 10% per annum through the maturity date, calculated on the basis of a 365-day, until the entire indebtedness is fully paid, (e) Upon the closing of a $2,000,000 financing by the Company, all of the principal and interest shall automatically convert into equity shares of CGS at the price obtained by the qualified financing. Balance outstanding as of June 30, 2020 is approximately $600,000.

On January 6, 2020, the Company issued a revolving credit promissory note to Community Growth Partners Holdings, Inc., (“CGS”) which will act as a second line of credit once the convertible prom note is fulfilled. Subject to the terms and conditions of the note, CGS promises to pay the Company, on the fourth anniversary of the effective date, the lesser of $2,500,000 or the aggregate unpaid principal balance amount of the loans made by the Company to CGS from time to time in accordance with the terms together with interest on the unpaid balance.

7. Non-Controlling Interests

Non-controlling interests in consolidated entities are as follows (in thousands):

	As of June 30, 2020
	NCI Equity Share		Net Loss Attributable to NCI			NCI in Consolidated Entities		Non-Controlling Ownership %
NVD RE Corp.	$	916	$	(43	)	$	873		50.0	%
Western Coast Ventures, Inc.	$	1,287		(192	)		1,095		49.0	%
YMY Ventures, Inc.	$	447		(231	)		216		50.0	%
	$	2,650	$	(466	)	$	2,184

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8. Intangible Assets, net

Intangible assets as of June 30, 2020 (in thousands):

	Estimated Useful Life		Cannabis Licenses		Tradename		Customer Relationship		Non-compete		Accumulated Amortization			Net Carrying Amount
Balance as September 30, 2019			$	5,814	$	147	$	135	$	220	$	-		$	6,316
YMY Ventures (1)		15		-		-		-		-		(38	)		(38	)
Western Coast Ventures, Inc. (1)		15		-		-		-		-		(122	)		(122	)
Yerba Buena		3-15 years		-		-		-		-		(172	)		(172	)
Foot Hills		15		4,474								(98	)		4,376
Other		5		-		-		-		-		-			-
Balance as June 30, 2020			$	10,288	$	147	$	135	$	220	$	(430	)	$	10,360

(1) These represent provisional licenses that the Company acquired during the fiscal years ended September 30, 2019 and 2018. Once these licenses are approved by their respective regulatory bodies, the Company will amortize these cannabis licenses over a 15-year estimated useful life. Amortization expense for the three and nine months ended June 30, 2020 was $172 and $430, respectively.

9. Related party

In the period ended June 30, 2020, the Company was advanced $490 by the parent company of 7LV.

10. Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following (in thousands):

	June 30, 2020		September 30, 2019
Accounts payable	$	1,663	$	707
Accrued credit cards		38		31
Accrued interest		133		106
Other		393		238
Total Accounts Payable and Accrued Expenses	$	2,226	$	1,082

11. Notes Payable and Advances

The following table summarizes the Company’s notes, mortgages, and advances as of June 30, 2020 and September 30, 2019 (in thousands):

	June 30,		September 30,
	2020		2019
Equipment financing	$	30	$	33
Insurance financing		174		160
Mortgages payable		1,259		2,191
Promissory note		1,489		1,000
	$	2,952	$	3,384
Acquisition notes payable		679		708
Total notes payable and advances	$	3,631	$	4,092
Long-term mortgages		3,085

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Equipment financing

Effective May 29, 2018, the Company entered into a 24-month premium finance agreement in consideration for a MT85 wide track loader in the principal amount of $27,844. The note bears no annual interest rate and requires the Company to make 24 monthly payments of $1,160 over the term of the note. As of June 30, 2020, the obligation has been paid. No amount was recorded for the premium for the non- interest-bearing feature of the note as it was immaterial.

Effective April 29, 2018, the Company entered into a 36-month premium finance agreement in consideration for a John Deere Gator Tractor in the principal amount of $15,710. The note bears no annual interest rate and requires the Company to make thirty-nine monthly payments of $442 over the term of the note. As of June 30, 2020, the obligation outstanding is $4,425. No amount was recorded for the premium for the non-interest-bearing feature of the note as it was immaterial. The note is secured by the equipment financed.

November 2017, the Company entered into a promissory note in the amount of $21,749 from a vendor of the Company to finance the acquisition of a security electronics system in one of its properties. The promissory note bears an interest rate of 18% per annum and also contains a 10% servicing fee. The note matures 24 months after issuance and is secured by certain security electronics purchased with proceeds of the note. This vendor is currently in a restructuring and is likely to go out of business. As of June, 2019, the Company has been notified that the vendor holding the note is in bankruptcy and during the year ended September June, 2019, the Company withheld payment under the note. The obligation remains outstanding at $14,950 as of June 30, 2020.

Upon acquisition of Yerba Buena on June 24, 2019, the Company assumed the liability of a 2017 tractor with a balance of approximately $18,000. The note bears no annual interest rate and requires the Company to make monthly payments of $482 over the term of the note. As of June 30, 2020, the obligation outstanding is $11,056. No amount was recorded for the premium for the non-interest-bearing feature of the note as it was immaterial. The note is secured by the equipment financed.

Insurance financing

Effective July 30, 2019, the Company entered into a 10-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $63,101. The note bears an annual interest rate of 7.63% and requires the Company to make ten monthly payments of $4,582 over the term of the note. As of June 30, 2020, the obligation has been paid in full.

Effective July 30, 2019, the Company entered into a 10-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $78,900. The note bears an annual interest rate of 7.25% and requires the Company to make ten monthly payments of $5,756 over the term of the note. As of June 30, 2020, the obligation has been paid in full.

Effective June 8, 2019, the Company entered into a 10-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $5,975. The note bears an annual interest rate of 5.75% and requires the Company to make ten monthly payments of $513 over the term of the note. As of June 30, 2020, the obligation was paid in full.

Effective May 24, 2019, the Company entered into a 9-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $11,440. The note bears an annual interest rate of 8.7% and requires the Company to make 9 monthly payments of $1,322 over the term of the note. As of June 30, 2020, the obligation was paid in full.

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Effective December 5, 2019, the Company entered into a 12-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $9,490. The note bears an annual interest rate of 8.7% and requires the Company to make 9 monthly payments of $685 over the term of the note. As of June 30, 2020, the obligation outstanding is $1,369.

Effective February 7, 2020, the Company entered into a 12-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $300,150. The note bears an annual interest rate of 7.46%. The Company paid $60,255 as a down payment on February 7, 2020, the note requires the Company to make 9 monthly payments of $22,718 over the remaining term of the note. As of June 30, 2020, the obligation outstanding is $159,024.

Notes payable

In July 2018, the Company entered into an agreement to acquire a 25% interest in East Coast Packers LLC (“ECP”) for the purchase price of $1.5 million, payable in the amount of $500,000 in cash at closing and a note for $1 million. All amounts are payable to ECP. At the time of closing, ECP was a dormant Florida LLC, but owned a citrus fruit dealer license active for the 2015-2016 growing season. This qualified ECP under newly enacted legislation in the state of Florida to apply for a license to produce and sell medical cannabis. Until such time as ECP is granted a medical cannabis license, the $500 paid into ECP may only be expended by ECP in acquiring a medical cannabis license.

In the period ended June 30, 2020, the Company and ECP agreed to unwind the transaction. The Company returned its membership interest, the $1 million promissory note was cancelled and the remaining equity method investment of approximately. $236 was written off to loss from equity method investees on the statement of operations and ECP returned $232 of cash to the Company.

For the quarter ended June 30, 2020, the Company received loan proceeds of $266,820 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated May 01, 2020, between the Company and Transportation Alliance Bank as the lender, matures on May 01, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

The Promissory Note evidencing the PPP Loan contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

For the quarter ended June 30, 2020, the Company’s related entity received loan proceeds of $245,400 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated June 03, 2020, between the Company and Coastal States Bank as the lender, matures on June 03, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

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The Promissory Note evidencing the PPP Loan is entered into subject to guidelines applicable to the program and contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

For the quarter ended June 30, 2020, the Company’s subsidiary received loan proceeds of $62,500 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated June 25, 2020, between the Company and First Home Bank as the lender, matures on June 25, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

The Promissory Note evidencing the PPP Loan is entered into subject to guidelines applicable to the program and contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

Mortgages payable

On January 16, 2018 the Company consummated a “Contract for Sale” for a Farm Property in Mulino OR (the “Mulino Property”). The purchase price was $1,700,000 which was reduced by a rental credit of approximately $135,000 which is equivalent to nine months’ rent at $15,000 a month and an additional credit of $9,500 for additional work done on the property. In connection with the purchase of the property, the Company made a cash payment as down payment plus payment of closing costs in the amount of $370,637 and issued a promissory note in the amount of $1,200,000 with a maturity of January 2020. The Company will pay monthly installments of principal and interest (at a rate of 2% per annum) in the amount of $13,500, commencing in July 2018 through the maturity date (January 2020), at which time the entire unpaid principal balance and any remaining accrued interest shall be due and payable in full. No amount was recorded for the premium for the below market rate feature of the note as it was immaterial. The note is secured by a deed of trust on the property. The Company performed an analysis and determined that the rate obtained was below market, however, no premium was recorded as the Company determined it was immaterial. At June 30, 2020, the balance due is $958,500. Currently the Company has received a verbal extension through the next quarter to procure additional financing on this property to pay off the indebtedness.

On February 28, 2018, the Company executed a $550,000 mortgage payable on the Willamette property to acquire additional funds. The mortgage bears interest at 15% per annum. Monthly interest only payments began June 1, 2018 and continue each month thereafter until paid. The entire unpaid balance is due on June 1, 2020, the maturity date of the mortgage, and is secured by the underlying property. The Company paid costs of approximately $28,000 to close on the mortgage. The mortgage terms do not allow participation by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company. The amount outstanding was $550,000 under this mortgage. In June 2020, the Company completed a refinance of this mortgage. In the refinance, the Company entered into a mortgage, secured by the property with an additional personal guaranty of the CEO of the Company, for $700,000 with an annual interest rate of 15%, paid points at closing totaling $42,000 and a maturity date of June 30, 2022

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On April 4, 2018, the Company executed a $304,000 mortgage payable on the Powell property to acquire additional funds. At closing $75,000 of the proceeds was put into escrow. The mortgage bears interest at 15% per annum. Monthly interest only payments began May 1, 2018 and continue each month thereafter until paid. The entire unpaid balance is due on April 1, 2020, the maturity date of the mortgage, and is secured by the underlying property. The Company plaid costs of approximately $19,000 to close on the mortgage. The mortgage terms do not allow participations by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company. The amount outstanding was $304,000. In January 2020, the Company completed a refinance of this mortgage. In the refinance, the Company entered into a mortgage, secured by the property with an additional personal guaranty of the CEO plus an assignment of the right and title in all of CEO’s common shares of the Company as collateral under the mortgage, for $400,000 with an annual interest rate of 15%, paid points at closing totaling $24,000 and a maturity date of January 30, 2022.

In April 2018, the Company received a 37.5% interest in NVD RE Corp. (“NVD”) upon its issuance to NVD of a commitment to contribute $1.275 million to NVD which included the purchase price of $600,000 and an additional commitment to pay tenant improvement costs of $675,000. In the year ended September 30, 2019, NVD obtained $300,000 in proceeds from a mortgage on its property. The funds from this mortgage were advanced to the Company. The advance is undocumented, non-interest bearing and due on demand. At June 30, 2020, the balance due totals $300,000.

For the period ended June 2020, the Company executed a $1,585,000 mortgage payable on property located in Oregon to acquire additional funds. The mortgage bears interest at 11.55% per annum. Monthly interest only payments began April 1, 2020 and continue each month thereafter until paid. The entire unpaid balance is due on April 1, 2023, the maturity date of the mortgage, and is secured by the underlying property. The Company paid costs of approximately $120,000 to close on the mortgage. The mortgage terms do not allow participation by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company.

For the period ended June 30, 2020, the Company executed a $400,000 mortgage payable on property located in Oregon to acquire additional funds. The mortgage bears interest at 11.55% per annum. Monthly interest only payments began May 1, 2020 and continue each month thereafter until paid. The entire unpaid balance is due on April 1, 2022, the maturity date of the mortgage, and is secured by the underlying property. The Company paid costs of approximately $38,000 to close on the mortgage. The mortgage terms do not allow participation by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company.

Acquisition Notes Payable

In April 2019, the Company entered into a promissory note with a principal balance of $400,000 related to its acquisition of Yerba Buena, Oregon LLC. The note was issued on April 8, 2019 and is due on April 8, 2021. The note has a coupon interest rate of 8%. As of June 30, 2020, the Company has made payments of $28,093 leaving a balance of $371,907 in Short-term liabilities.

In September 2018, the Company entered into an agreement to acquire 50% of the membership interest of YMY. In connection with this agreement, the Company recorded a note payable of approximately $300,000. As of June 30, 2020, the Company has not made any payments related to this note.

Other Promissory Notes

In January 2020, the Company issued a promissory note with a principal balance of $500,000 to accredited investors (the “Note Holders”). The notes mature in July 2020 and has an annual rate of interest of 12%. In connection with the issuance of the promissory notes, the Company issued the Note Holders 100,000 common stock purchase warrants with a five-year term from the issuance date, $0.85 per.

In January 2020, the Company issued another promissory notes with a principal balance of $500,000 to accredited investors (the “Note Holders”). The notes mature in October 2020 and has an annual rate of interest of 12%. In connection with the issuance of the promissory notes, the Company issued the Note Holders 100,000 common stock purchase warrants with a five-year term from the issuance date, $0.85 per.

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12. Convertible debt

8% Convertible notes

Nine-month term

During the year ended September 30, 2018, the Company issued convertible promissory notes with a principal balance of $975,000 to accredited investors (the “Note Holders”). The notes matured in June 2019 and had an annual rate of interest of 8%. Unless the notes are prepaid, the notes will automatically convert at the maturity date into shares of the Company’s common stock at a conversion price of $2.50 per share. In October 2018, the Company offered the convertible note holders the opportunity to receive a reduced conversion price from $2.50 per share to $1.80 per share as an inducement for the Note Holders to convert the notes. As of October 30, 2018, all of the convertible note holders agreed to convert at the reduced price offered by the Company. The Company issued 541,668 shares of common stock in conversion of the notes. The Company recognized an inducement cost associated with the conversion of the convertible promissory notes of approximately $0.368 million with a corresponding credit to additional paid-in capital.

In connection with the issuance of the convertible promissory notes, the Company issued the Note Holders common stock purchase warrants with a three year term from the issuance date, providing the Note Holders the right to purchase 97,500 shares of the Company’s common stock at $2.50 per share, with standard anti-dilution protection. After allocating issuance proceeds to the warrant liability, the effective conversion price of the convertible promissory notes was below the quoted market price of the Company’s common stock. As such, the Company recognized beneficial conversion feature equal to the intrinsic value of the conversion feature on the issuance date, resulting in an additional discount to the initial carrying value of the convertible promissory notes of approximately $0.5 million with a corresponding credit to additional paid-in capital. As of June 30, 2020, the balance of the warrant liability for these debentures is 0.

Twelve-month term

In May and June 2018, the Company issued senior unsecured convertible notes with a principal balance of $1.5 million to accredited investors (the “Note Holders”). The notes matured in May 2019 and had an annual rate of interest at 8%. Accrued interest was payable quarterly in arrears on the fifth day of each calendar quarter. The notes ranked senior to all obligations not designated as a primary obligation by the Company. The Note Holders were entitled to convert all or any amount of the principal balance then outstanding into shares of the Company’s common stock at a conversion price of $2.50 per share. On November 1, 2018, the Company reduced the conversion price from $2.50 per share to $1.80 per share as an inducement for the Note Holders to convert the notes. Since the notes are optionally convertible by the Note Holders, were issued at par value and did not contain any detachable instruments, the effective conversion price is equal to the stated conversion price of $1.80 per share. The Company recognized an inducement cost associated with the conversion of the convertible promissory notes of approximately $0.9 million with a corresponding credit to additional paid-in capital.

During October 2018, the Note Holders fully converted the notes into 833,333 shares of the Company’s common stock and the debt discount related to the notes was fully amortized.

Canaccord

On December 27, 2018, the Company entered into an Agency Agreement (the “Agency Agreement”) for a private offering of up to 10,000 convertible debenture special warrants of the Company (the “CD Special Warrants”) for aggregate gross proceeds of up to CDN$10,000,000 (the “Offering”). The net proceeds of the Offering were used for expansion initiatives and general corporate purposes. The Company’s functional currency is U.S. dollars.

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In December 2018 and January 2019, the Company issued 3,121 CD Special Warrants in the first closing of the Offering, at a price of CDN $1,000 per CD Special Warrant, and received aggregate gross proceeds of CDN $3.1 million or $2.3 million USD. In connection with this offering, the Company issued the agents in such offering 52,4June convertible debenture special warrants (the “Broker CD Special Warrants”) as partial satisfaction of a selling commission.

On June 14, 2019, the Company issued 962 CD Special Warrants in the second and final closing of the Offering, at a price of CDN $1,000 per CD Special Warrant, and received aggregate gross proceeds of CDN $1.0 million or $0.7 million USD. In connection with this offering, the Company issued the agents in such offering 5,600 convertible debenture special warrants (the “Broker CD Special Warrants”) as partial satisfaction of a selling commission.

The total aggregate proceeds of the Offering totaled $4.1 million CDN or $3.1 million USD.

Each CD Special Warrant will be exchanged (with no further action on the part of the holder thereof and for no further consideration) for one convertible debenture unit of the Company (a “Convertible Debenture Unit”), on the earlier of: (i) the third business day after the date on which both (A) a receipt (the “Receipt”) for a (final) prospectus (the “Qualification Prospectus”) qualifying the distribution of the Convertible Debentures (as defined below) and Warrants (as defined below) issuable upon exercise of the CD Special Warrants has been issued by the applicable securities regulatory authorities in the Canadian jurisdictions in which purchasers of the CD Special Warrants are resident (the “Canadian Jurisdictions”), and (B) a registration statement (the “Registration Statement”) registering the resale of the common shares underlying the Convertible Debentures and Warrants has been declared effective by the U.S. Securities and Exchange Commission (the “Registration”); and (ii) the date that is nine months following the closing of the Offering. The Company has also provided certain registration rights to purchasers of the CD Special Warrants. The CD Special Warrants were exchanged for Convertible Debenture Units after nine months as U.S. and Canadian registrations were not effective at that time.

Each Convertible Debenture Unit is comprised of CDN $1,000 principal amount 8.0% senior unsecured convertible debenture (each, a “Convertible Debenture”) of the Company and 167 common share purchase warrants of the Company (each, a “Warrant”). Each Warrant entitles the holder to purchase one common share of the Company (each, a “Warrant Share”) at an exercise price of CDN $3.90 per Warrant Share for a period of 24 months following the closing of the Offering (see Note 17).

The Company has agreed to use its best efforts to obtain the Receipt and Registration within nine months following the closing of the Offering. In the event that the Receipt and Registration have not been obtained on or before 5:00 p.m. (PST) on the date that is 120 days following the closing of the Offering, each unexercised CD Special Warrant will thereafter entitle the holder thereof to receive, upon the exercise thereof and at no additional cost, 1.05 Convertible Debenture Units per CD Special Warrant (instead of 1.0 Convertible Debenture Unit per CD Special Warrant). Until the Receipt and Registration have been obtained, securities issued in connection with the Offering (including any underlying securities issued upon conversion or exercise thereof) will be subject to a 6-month hold period from the date of issue. Since the CD Special Warrants were exchanged for Convertible Debenture Units after 6 months as U.S. and Canadian registrations were not effective at that time, the holders received 1.05 Convertible Debenture Units per CD Special Warrant.

The brokered portion of the Offering (CDN $2.5 million, $1.9 million USD) was completed by a syndicate of agents (collectively, the “Agents”). The Company paid the Agents a cash commission equal to 7.0% of the gross proceeds raised in the brokered portion of the Offering. As additional consideration, the Company issued the Agents such number of non-transferable broker convertible debenture special warrants (the “Broker CD Special Warrants”) as is equal to 7.0% of the number of CD Special Warrants sold under the brokered portion of the Offering. Each Broker CD Special Warrant shall be exchanged, on the same terms as the CD Special Warrants, into broker warrants of the Company (the “Broker Warrants”). Each Broker Warrant entitles the holder to acquire one Convertible Debenture Unit at an exercise price of CDN $1,000, until the date that is 24 months from the closing date of the Offering. The distribution of the Broker Warrants issuable upon the exchange of the Broker CD Special Warrants shall also be qualified under the Qualification Prospectus and the resale of the common shares underlying the Broker Warrants will be registered under the Registration Statement. The Company also paid the lead agent a commission noted above of CDN$157,290, corporate finance fee equal to CDN $50,000 in cash and as to $50,000 in common shares of the Company at a price per share of CDN $3.00 plus additional expenses of CDN$20,000. In addition, the Company paid the trustees legal fees of CDN$181,365. In total the Company approx. USD $0.32 million in fees and expenses associated with the offering.

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The issuance of the securities was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), for the offer and sale of securities not involving a public offering, Regulation D promulgated under the Securities Act, Regulation S, in Canada to “accredited investors” within the meaning of National Instrument 45106 and other exempt purchasers in each province of Canada, except Quebec, and/or outside Canada and the United States on a basis which does not require the qualification or registration. The securities being offered have not been registered under the Securities Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from the registration requirements.

The Convertible Debenture features contain the following embedded derivatives:

● Conversion Option - The Convertible Debentures provide the holder the right to convert all or any portion of the outstanding principal into common shares of the Company at a conversion price of C$3.00 such that 333.33 common shares are issued for each C$1,000 of principal of Convertible Debentures converted.

● Contingent Put - Upon an Event of Default, the Convertible Debentures settle for cash at the outstanding principal and interest amount (at discretion of the Indenture Trustee or upon request of Holders of 25% or more of principal of the Convertible Debentures).

● Contingent Put - Upon a Change in Control, the Convertible Debentures settle for cash at the outstanding amount and principal and interest * 105% (where Holder accepts a Change of Control Offer).

The conversion option, the contingent put feature upon an Event of Default, and the contingent put feature upon a Change in Control should be bifurcated and recognized collectively as a compound embedded derivative at fair value at inception and at each quarterly reporting period.

A five percent penalty assessed for failure to timely file a registration statement to register the stock underlying the CD special warrants.

The Company valued the warrants granted using the Black-Scholes pricing model and determined that the value at grant date was approximately $424,000 USD (this includes the warrants issued as part of the penalty for failure to timely file the required registration statement under the indenture agreement). The significant assumptions used in the valuation are as follows:

Fair value of underlying common shares	$	1.78 to 2.10
Exercise price (converted to USD)	$	1.125
Dividend yield		-
Historical volatility		115	%
Risk free interest rate		1.40 to 1.90	%

The warrants are not indexed to the Company’s own stock under ASC 815, Derivatives and Hedging. As such, the warrants do not meet the scope exception in ASC 815-10-15-74(a) to derivative accounting and therefore were accounted for as a liability in accordance with the guidance in ASC 815. The warrant liability was recorded at the date of grant at fair value with subsequent changes in fair value recognized in earnings each reporting period.

The table below shows the warrant liability and embedded derivative liability recorded in connection with the Canaccord convertible notes and the subsequent fair value measurement during the nine months ended June 30, 2020 in USD, (in thousands):

	Warrant Liability			Derivative Liability
Balance at September 30, 2019	$	42		$	158
Change in fair value		(7	)		(21	)
Balance at December 31, 2019		35			137
Change in fair value		(15	)		(121	)
Balance at March 31, 2020		20			16
Change in fair value		50			570
Balance at June 30, 2020	$	70		$	586

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The table below shows the net amount of convertible notes as of June 30, 2020 in USD (in thousands):

	June 30, 2020
Principal value of 8%, convertible at $0.84 at June 30, 2020, due December 27, 2020
including penalty provision of $155,239	$	2,901
Principal value of 10%, convertible at $1.22 at June 30, 2020, due May 30, 2021 (see note 5)		3,410
Debt discount		(557	)
Cumulative foreign currency impact		242
Carrying value of convertible notes	$	5,996

In April, 2020 the Company received approval of the holders Warrant holders of the warrants and the holders debenture holders of the Convertible Debentures to reprice the convertible securities issued in connection with the Company’s special warrant financing, which closed on December 27, 2018 and June 14, 2019. The share purchase warrants of the Company issued in connection with the financing will be repriced to C$1.50 per Common Share and the convertible debentures of the Company issued in connection with the financing will be repriced to C$1.15 per common share. Additionally, the Debenture holders have approved the following amendments to the terms of the convertible debentures: (i) an extension to the maturity date of the convertible debentures to three years from the date of issuance; and (ii) an amendment to permit the Company to force the conversion of the principal amount of the then outstanding convertible debentures and any accrued and unpaid interest thereof at the new conversion price on not less than June days’ prior written notice if the closing trading price of the shares of common stock of the Company’s common shares exceeds C$1.90 for a period of 10 consecutive trading days on the CSE. The Warrant holders have also approved the inclusion of an early acceleration feature in accordance with the policies of the Canadian Securities Exchange, permitting the Company to accelerate the expiry date of the warrants should the closing trading price of the Common Shares exceed C$1.87 for a period of 10 consecutive trading days on the CSE.

13. Fair Value Measurements

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion feature associated with convertible debt on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:

Level 1 – Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date

Level 2 – Quoted prices in markets that are not active or inputs which are either directly or indirectly observable

Level 3 – Unobservable inputs for the instrument requiring the development of assumptions by the Company

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The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2020 (in thousands):

	Fair value measured at June 30, 2020
				Quoted	Significant
				prices in active markets	other observable inputs		Significant unobservable inputs
	Fair value			(Level 1)	(Level 2)		(Level 3)
Warrant liability	$	448	$	-	$	-	$448
Embedded derivative liability		586		-		-	586
Total fair value	$	1,034	$	-	$	-	$1,034

There were no transfers between Level 1, 2 or 3 during the nine months ended June 30, 2020.

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended June 30, 2020. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).

				Embedded
	Warrant Liability			Derivative Liability			Total
Balance – September 30, 2019	$	283		$	158		$	441
Warrants granted for stock-based compensation		-			-			-
Change in fair value		(38	)		(21	)		(59	)
Balance - December 31, 2019		245			137			382
Warrants issued pursuant to acquisition (see Note 5)		823						823
Warrants granted for stock-based compensation		105			-			105
Change in fair value		254			(121	)		133
Other		(10	)		-			(10	)
Balance - March 31, 2020		1,417			16			1,433
Change in fair value		(969	)		570			(399	)
Balance - June 30, 2020	$	448		$	586		$	1,034

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of June 30, 2020 is as follows:

	Warrant Liability
	As of June 30, 2020
Strike price	$	0.45
Contractual term (years)		1 to 3
Volatility (annual)		115	%
Risk-free rate		.29	%
Dividend yield (per share)		0	%

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	Embedded Derivative Liability
	As of June 30, 2020			As of September, 2019
Strike price	$	1.36		$	0.80
Contractual term (years)		1.5			1.2
Volatility (annual)		122	%		85	%
Risk-free rate		1.36	%		1.68	%
Dividend yield (per share)		0	%		11.12	%

The Company used a lattice based trinomial model developed by Tsiveriotis, K. and Fernades in which the three lattices incorporate (1) the Company’s underlying common stock price; (2) the value of the debt components of the convertible notes; and (3) the value of the equity component of the convertible notes. The main drivers of sensitivity for the model are volatility and the credit spread. The model used will vary by approximately 1.5% for a 4% change in volatility and will vary by less than 1% for each 1% change in credit spread.

14. Shareholders’ Equity

Preferred shares

The Company had two series of preferred shares designated with no preferred shares issued and outstanding as of June 30, 2020 and September 30, 2019.

Common shares

As of May 2020, the Company entered into a Share Exchange Agreement with the NVDRE shareholders to exchange their shareholdings that represent 12.5 percent of NVDRE in exchange for the issuance of the Company’s common stock. The exchange amounted to the issuance of 386,030 shares of the Company’s common stock valued and recorded to investment at $196,000 (see note 5).

During the nine months ended June 30, 2020, the Company issued 394,270 shares of its common stock in connection with a Membership Interest Purchase Agreement for real property located in Eugene, Oregon. The agreed upon purchase price was $500 less the lien of $106. The Company acquired the property from a related party and recorded the building at its carrying value of approximately $500. In connection with this transaction the Company issued 394,270 common shares at $1.00 per share.

Pursuant to the acquisition of 7LV, the Company issued 11,999,008 shares of common stock to former shareholders of 7LV. The Company also issued an aggregate 682,000 shares and replacement 10% unsecured convertible debentures in the aggregate principal amount of C$4,571 ($3,410 USD) (the “Replacement Debentures”), convertible into shares at a conversion price of C$1.67 per share at any time prior to May 3, 2021, to former holders of unsecured convertible debentures of 7LV (see note 5).

The Company issued 202,350 common shares for the fair value of $121 in partial payment of interest on convertible notes in connection with the Seven Leaf Ventures Corporation acquisition.

Common stock issuances for compensation:

During the three months ended December 30, 2019, the Company issued 5,000 shares of its common stock related to a consulting agreement for a fair value of approximately $4 or $0.89 per share.

During the three months ended December 30, 2019, the Company issued 100,000 shares of its common stock related to an employment agreement for a fair value of approximately $498.

During the period ended June 30, 2020, the Company issued 970,416 shares of its common stock related to various consulting agreements for a fair value of approximately $850 or $0.88 per share. During the same period, the Company cancelled 700,000 common shares related to consulting agreements.

During the period ended June 30, 2020, the Company issued 303,756 shares of its common stock related to various employment agreements for a fair value of approximately $47.

During the period ended June 30, 2020, the Company issued 18,750 shares of the Company’s common stock valued at $6 as stock-based compensation.

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15. Stock Based Compensation

Stock Options

The fair value of the Company’s common stock was based upon the publicly quoted price on the date that the final approval of the awards was obtained. The Company does not expect to pay dividends in the foreseeable future so therefore the expected dividend yield is 0%. The expected term for stock options granted with service conditions represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission’s Staff Accounting Bulletin for “plain vanilla” options for options granted in 2019. The expected term for stock options granted with performance and/or market conditions represents the period estimated by management by which the performance conditions will be met. The Company obtained the risk-free interest rate from publicly available data published by the Federal Reserve. The Company uses a methodology in estimating its volatility percentage from a computation that was based on a comparison of average volatility rates of similar companies to a computation based on the standard deviation of the Company’s own underlying stock price’s daily logarithmic returns. The fair value of options granted during the nine months ended June 30, 2020 were estimated using the following weighted-average assumptions:

Options:

	For the Nine Months Ended June 30, 2020
Exercise price		$0.80 - $4.00
Expected term (years)		.5 - 4.0
Expected stock price volatility		108.8% - 188.6	%
Risk-free rate of interest		1.6	%
Expected dividend rate		0	%

A summary of option activity under the Company’s stock option plan for nine months ended June 30, 2020 is presented below:

	Number of Shares		Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of September 30, 2019		3,210,416	$	2.45	$	-		2.1
Granted		1,262,500	$	1.19	$	-		2.3
Outstanding as of December 31, 2019		4,472,916	$	2.09	$	-		2.0
Granted		275,000
Outstanding as of March 31, 2020		4,747,916	$	2.03	$	-		1.66
Granted		-		-		-		-
Outstanding as of June 30, 2020		4,747,916		2.03		-		1.41
Options vested and exercisable		4,435,416	$	2.10	$	-		1.40

Estimated future stock-based compensation expense relating to unvested stock options was approximately $0.3 million as of June 30, 2020. Weighted average remaining contractual life of the options is 2.0 years.

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Stock-based Compensation Expense

Stock-based compensation expense for the three and nine months ended June 30, 2020 and 2019 was comprised of the following (in thousands):

	Three months ended June 30,
	2020		2019
Stock grants	$	6	$	3,995
Stock options		-		135
Warrants		-		-
Total stock-based compensation	$	6	$	4,130
		Nine months ended June 30,
		2020		2019
Stock grants	$	1,193	$	5,991
Stock options		615		478
Warrants		105		697
Total stock-based compensation	$	1,913	$	7,166

In the 4^th quarter of fiscal year ended September, 2019, the Company changed its policy for recognizing prepaid fully vested non-employee stock-based compensation. Historically, the Company would initially record a prepaid asset based upon the fair value of the award on the grant date and subsequently record this award over an implicit service period. The Company now expenses at grant all fully vested non-employee stock-based compensation on the grant date as there is no substantive future service period on the grant date. This change in accounting method was applied retrospectively, and this change resulted in an increase in stock-based compensation of $273 for the nine months ended June 30, 2019. This change increased the loss per share by $(0.01) from $(0.46) loss per share to $(0.47) per share for the nine months ended June 30, 2019.

16. Commitments and Contingencies

As noted earlier in Note 1, the Company, engages in a business that constitutes an illegal act under the laws of the United States Federal Government. This raises several possible issues which may impact the Company’s overall operations, not the least of which are related to traditional banking and other key operational risks. Since cannabis remains illegal on the federal level, and most traditional banks are federally insured, those financial institutions will not service cannabis businesses. In states where medical or recreational marijuana is legal, dispensary owners, manufacturers, and anybody who “touches the plant,” continue to face a host of operational hurdles. While local, state-chartered banks and credit unions now accept cannabis commerce, there remains a reluctance by traditional banks to do business with them. Aside from a huge inconvenience and the need to find creative ways to manage financial flow, payroll logistics, and payment of taxes, this also poses tremendous risks to controls as a result of operating a lucrative business in cash. This lack of access to traditional banking may inhibit industry growth. In the period ended June 30, 2020, the Company’s accounts with a major money center bank were closed as the bank would not allow the Company to continue to use its banking network.

Despite the uncertainties surrounding the Federal government’s position on legalized marijuana, the Company does not believe these risks will have a substantive impact on its planned operations in the near term.

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As of June 30, 2020, the Company has acquired interests in several entities. As part of those interests, the Company has commitments to fund the acquisition of licenses and permits to allow for the cultivation and sale of cannabis and related products in the United States and Eswatini. As of June 30, 2020, Company estimates that its investees will need up to approximately $2.5 million to complete the acquisition of licenses and permits, to fund the buildout or expansion of facilities to fully operate in their respective cannabis markets, which will encompass several years of development.

Effective January 2019, the Company entered into a one-year Board Member agreement, and as part of that agreement for services agreed to issue 250,000 shares of the Company’s common stock and 250,000 options priced at $1.00.

D.H. Flamingo, Inc. v. Department of Taxation, et. al.

On February 27, 2020, a subsidiary of the Company (YMY Ventures, LLC) was served with a Summons and Second Amended Complaint in a matter pending in the District Court of Clark County Nevada (Case # A-19-787004-B) which is styled “D.H. Flamingo, Inc. v. Department of Taxation, et. al.” (the DOT Litigation”). In this matter, the Plaintiff is alleging that certain parties (including YMY Ventures, LLC) received Conditional Recreational Marijuana Establishment Licenses, while certain other parties (including Plaintiff) were denied licenses. In the matter, Plaintiff seeks declaratory relief, injunctive relief, relief from violation of procedural and substantive due process, violation of equal protection, unjust enrichment, judicial review of the entire matter, together with a Petition for Writ of Mandamus. The Plaintiff seeks damages in an unspecified amount. Thereafter, on April 20, 2020, YMY Ventures, LLC filed a Notice of Non-Participation and Request for Dismissal. The Company believes it will ultimately be dismissed from the action without any liability exposure. Notwithstanding, there is no guarantee at this time that this will occur, and the ultimate result of the matter could potentially be the loss of YMY Ventures, LLC’s Conditional Recreational Marijuana Establishment License. The Company believes that this result would be highly unlikely and that the matter will be fully resolved as to YMY Ventures, LLC in the near term.

Chord Advisors, LLC v. Stem Holdings, Inc., et. al.

On June 5, 2020 Chord Advisors, LLC (“Chord”) filed a Complaint in the Circuit Court of the Fifteenth Judicial District in and for Palm Beach County, Florida (Case # 502020CA006097) alleging that Stem Holdings, Inc. owes Chord approximately $260,000 on account of fees for accounting services accrued pursuant to a Letter of Agreement dated October 2019. On July 6, 2020, the Company filed an Answer and Affirmative Defenses to the Complaint. This matter is in its early stages and, while the Company believes that it has meritorious defenses to the matters detailed in the Complaint, it is impossible to predict the outcome of the matter.

Lili Enterprises, LLC adv. YMY Ventures and OPCO, LLC

In July 2020, a dispute arose with the Company’s joint venture partner in connection with the Company’s operations in the State of Nevada. In this regard, the Company’s joint venture partner claims that it is owed certain amounts totaling approximately $307,500 pursuant to the joint venture Operating Agreement. On the other hand, the Company claims that the joint venture partner is in breach of its agreements with the Company and that the Company has heretofore advanced over $1 million in excess of its commitments under the Operating Agreement. The operative agreements require the disputes to be arbitrated. The parties have engaged an arbitrator and the matters are set for an arbitration hearing in February 2021. Ultimately, while the Company believes that a settlement will be reached, it is impossible to predict the outcome of the matter.

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For the period ended June 2020, the Company entered into a nine-month consulting agreement, and as part of that agreement for professional services, agreed to issue a total of 350,000 shares of the Company’s common stock and $100,000 cash compensation. Pursuant to the agreement, all 350,000 shares of common stock will be restricted securities.

For the period ended 2020, the Company entered into a nine-month consulting agreement, and as part of that agreement for professional services, agreed to issue a total of 100,000 shares of the Company’s common stock and $10,000 cash compensation. Pursuant to the agreement, all 100,000 shares of common stock will be restricted securities.

17. Subsequent Events

In July 2020, the Company’s wholly owned subsidiary in Oregon received loan proceeds of $220,564 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated July 09, 2020, between the Company and Cross River Bank as the lender, matures on July 09, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

The Promissory Note evidencing the PPP Loan is entered into subject to guidelines applicable to the program and contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

The Company filed a Registration Statement with respect to the prospective sale of up to 10,000,000 shares of Common Stock which was declared effective by the U.S. Securities Exchange Commission on July 2, 2020.  As of the date of this report, none of the registered shares have been sold and, as a result, there are no proceeds of sales to report.”

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

This Interim Report on Form 10-Q contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PLSRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding Stem Holdings, Inc. (the “Company” or “Stem”, also referred to as “us”, “we” or “our”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” as well as in this Form 10-Q generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.

Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” detailed in the Company’s Form 10 and S-1 registration statement, 10k annual report and matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.

For the three and nine months ended June 30, 2020, the financial statements have been prepared by management in accordance with the standards of the Public Company Accounting Oversight Board (United States). For the three and nine months ended June 30, 2020 and 2019, the unaudited interim financial statements have been prepared by management in accordance with the condensing rules of the United States Securities and Exchange Commission.

OVERVIEW

Stem Holdings, Inc. (“Stem” or the “Company”) is a Nevada corporation incorporated on June 7, 2016. The Company is a multi-state, vertically integrated, cannabis company that purchases, improves, leases, operates and invests in properties for use in the production, distribution and sales of cannabis and cannabis-infused products licensed under the laws of the states of Oregon, Nevada, California and Oklahoma. As of June 30, 2020, Stem had ownership interests in 26 state issued cannabis licenses including six (6) licenses for cannabis cultivation, three (3) licenses for cannabis production, five (5) licenses for cannabis processing, one (1) license for cannabis wholesale distribution, one (1) license for hemp production and ten (10) cannabis dispensary licenses.

The Company is also currently working towards acquiring additional entities and assisting certain joint ventures with obtaining licenses and permits for cannabis production, distribution and sale in additional US states and foreign countries. Should it be successful in these endeavors, the Company will transform into a multi-state and worldwide, vertically integrated, cannabis company that purchases, improves, leases, operates and invests in properties for use in the production, distribution and sales of cannabis and cannabis-infused products licensed under the laws of the states of Oregon, Nevada, California and Oklahoma.

Stem’s potential partner consumer brands are award-winning and nationally known, and include cultivators, TJ’s Gardens and Yerba Buena; retail brands, Stem and TJ’s; infused product manufacturers, Cannavore and Supernatural Honey; and a CBD company, Dose-ology.

The Company has incorporated 6 wholly owned subsidiaries –Stem Group Oklahoma, Inc., Stem Holdings Florida, Inc. Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco, LLC, and Stem Agri, LLC.

The Company’s stock is publicly traded and is listed on the Canadian Securities Exchange under the symbol “STEM” and the OTCQB exchange under the symbol “STMH”.

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Recent Developments

Cannabis is currently a Schedule I controlled substance under the Controlled Substances Act (CSA) and is, therefore, illegal under federal law. Even in those states in which the use of cannabis has been legalized pursuant to state law, its use, possession or cultivation remains a violation of federal law. A Schedule I controlled substance is defined as one that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The U.S. Department of Justice (the “DOJ”) defines Schedule I controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce the CSA, persons that are charged with distributing, possessing with intent to distribute or growing cannabis could be subject to fines and/or terms of imprisonment, the maximum being life imprisonment and a $50 million fine, even though these persons are in compliance with state law.

In light of such conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. The new administration under President Trump could decide to strongly enforce the federal laws applicable to cannabis. See Justice Department Memo on Marijuana Enforcement discussed below. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While we do not currently harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement policies of the federal government.

The Company and our licensed products will also be subject to a number of other federal, state and local laws, rules and regulations. We anticipate that our licensees and vendors will be required to manufacture our products in accordance with the Good Manufacturing Practices guidelines and will be subject to regulations relating to employee safety, working conditions, protection of the environment, and other items. The current administration has indicated that it will closely scrutinize the cannabis industry, in particular, recreational marijuana. Changes in laws, rules and regulations or the recall of any product by a regulatory authority, could have a material adverse effect on our business and financial condition.

Justice Department Memo on Marijuana Enforcement

Because of the inconsistencies in federal and state law, on January 4, 2018, the Department of Justice (DOJ) issued a memo on federal marijuana enforcement policy announcing what it deemed to be a return to the rule of law and the rescission of previous guidance documents which would include the so called Cole Memorandum. Since the passage of the Controlled Substances Act in 1970, Congress has generally prohibited the cultivation, distribution, and possession of marijuana. In the memorandum, Attorney General Jeff Sessions directs all U.S. Attorneys to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to marijuana activities. The DOJ asserts this return to the rule of law is also a return of trust and local control to federal prosecutors who know where and how to deploy Justice Department resources most effectively to reduce violent crime, stem the tide of the drug crisis, and dismantle criminal gangs.

“It is the mission of the Department of Justice to enforce the laws of the United States, and the previous issuance of guidance undermines the rule of law and the ability of our local, state, tribal, and federal law enforcement partners to carry out this mission,” said Attorney General Jeff Sessions. “Therefore, today’s memo on federal marijuana enforcement simply directs all U.S. Attorneys to use previously established prosecutorial principles that provide them all the necessary tools to disrupt criminal organizations, tackle the growing drug crisis, and thwart violent crime across our country.”

We intend to conduct rigorous due diligence to verify the legality of all activities that we engage in and ensure that our activities do not interfere with any of the enforcement priorities of the Department of Justice.

Industrial Hemp

Industrial hemp is now legal in the U.S., which advocates hope could eventually loosen laws around the popular marijuana extract CBD. The 2018 farm bill which legalized hemp including a variety of cannabis that does not produce the psychoactive component of marijuana. CBD, a non-psychoactive compound that has started to turn up in beverages, health products and pet snacks, among other products. Notwithstanding, the Food and Drug Administration has issued a statement that despite the new status of hemp, CBD is still considered a drug ingredient and remains illegal to add to food or health products without the agency’s approval. The FDA has ruled that some hemp ingredients, such as hulled hemp seeds, hemp seed protein and hemp seed oil, are safe in food and won’t require additional approvals.

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COVID-19

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. The existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations disruptions to our retail operations and ou9r ability to collect rent from the properties which we own, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects throughout our business. If we need to close any of our facilities or a critical number of our employees become too ill to work, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the markets in which we operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

The Farm Bill sets U.S. Government agricultural and food policy. The current version of the bill places industrial hemp, which is defined as a cannabis plant with under 0.3% of tetrahydrocannabinol (“THC”) under the supervision of the Agriculture Department and removes CBD from the purview of the Controlled Substances Act, which regulates marijuana. The law also “explicitly” preserved the Food and Drug Administration’s authority to regulate products containing cannabis, or cannabis-derived compounds.

Summary of Results

The operations of the Company have changed dramatically over the past year and therefore the results presented herein in this management’s discussion and analysis are not directly comparable. For the three and nine months ended June 31, 2019, our results are only for Stem Holdings, Inc. and they comprise only real estate rental and general and administrative operations. At this time, the results of operations and financial position for the variable interest entities and affiliates we consolidated at our 2019 fiscal year end and ongoing into the 2nd quarter of fiscal 2020, were immaterial and therefore not included in the three and nine months ended June 30, 2019. In the three and nine months ended June 30, 2020, none of our results encompass real estate rental operations. The entirety of our operations now results directly from our cultivation, production and sale operations for cannabis and related products. In addition, we have in this period expanded beyond the state of Oregon, and in the three and nine months ended June 30, 2020, our results include operations in the state of Oregon, California, and Nevada.

	For the Three Months Ended June 30,						Change
($ in thousands)	2020			2019			$		%
Gross Revenue	$	6,696		$	621		$	6,075		978	%
Returns		2			-			2		100	%
Discounts		1,496			-			1,496		100	%
Net revenue		5,198			621			4,577		737	%
Net (loss)		(947	)		(3,693	)	$	2,746		(74	%)
Basic and diluted earnings (loss) per share		(0.01	)		(0.10	)

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Comparison of the results of operations for the three months ended June 30, 2020 compared to the three months ended June 30, 2019

The Company had gross revenues during the three months ended June 30, 2020 of $6,696 compared with $621for the comparable period of 2019, the increase is primarily due to the acquisitions of both Yerba Buena and Seven Leaf and the consolidation of eleven related entities. The company’s net revenue for the three months ended June 30, 2020 of $5,197 compared with $921 for the comparable period of 2019, the increase due to the acquisitions of both Yerba Buena and Seven Leaf and the consolidation of eleven related entities.

Cost of goods for the three months ended June 30, 2020 amounted to approximately $3,420 compared to $258 in the comparable period of the prior year. These costs include both the cost of finished product purchased for retail and the cost of cultivation and processing for the grow facilities and sold at the wholesale level.

In the three months ended June 30, 2020, we incurred consulting costs of $124 compared to $115 in the comparable period of the prior year. We expended those fees as we have yet to build up a significant employee base and currently outsource certain tasks to consultants. We expect in the upcoming year to increase our consulting fees as we continue to grow, even though we do expect to increase staffing, as we do not expect that growth will be commensurate with our growth from operations in the near term.

In the three months ended June 30, 2020, we incurred professional fees of approximately $257 compared to $418 in the comparable period of the prior year. Those fees are primarily for legal, accounting and related services relating to our being a public company in both the United States and Canada. We expect as we grow our operations these costs will continue to grow.

In the three months ended June 30, 2020, we incurred general and administrative costs of approximately $2,176 compared to $2,948 which included a decrease in option and stock based consulting and employee compensation expenses, a decrease in travel, legal fees and investor relations slightly offset by an increase in depreciation and amortization. We expect general and administrative costs will increase as we increase our operations.

	For the Nine Months Ended June 30,						Change
($ in thousands)	2020			2019			$		%
Total Revenue	$	10,315		$	1,314		$	9,001		685	%
Returns		2			-			2		100	%
Discounts		1,496			-			1,496		100	%
Net revenue		8,818			1,314			7,504		571	%
Net (loss)		(8,567	)		(10,379	)	$	1,811		(17	%)
Basic and diluted earnings (loss) per share		(0.15	)		(0.48	)

Comparison of the results of operations for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019

The Company had revenues during the nine months ended June 30, 2020 of $10,315 compared with $1,314 for the comparable period of 2019, the increase is primarily due to the acquisitions of both Yerba Buena and Seven Leaf and the consolidation of four related entities. The company’s net revenue for the nine months ended June 30, 2020 of $8,818 compared with $1,314 for the comparable period of 2019, the increase due to the acquisitions of both Yerba Buena and Seven Leaf and the consolidation of eleven related entities.

Cost of goods for the nine months ended June 30, 2020 amounted to approximately $6,062 compared to $258 in the comparable period of the prior year. These costs include both the cost of finished product purchased for retail and the cost of cultivation and processing for the grow facilities and sold at the wholesale level.

In the nine months ended June 30, 2020, we incurred consulting costs of $2,031 compared to $297 in the comparable period of the prior year. We mitigated our consulting expenses which were stock based the prior year.

In the nine months ended June 30, 2020, we incurred professional fees of approximately $1,780 compared to $1,269 in the comparable period of the prior year. Those fees are primarily for legal, accounting and related services relating to our being a public company in both the United States and Canada. We expect as we grow our operations these costs will continue to grow.

In nine months ended June 30, 2020, we incurred general and administrative costs of approximately $6,234 compared to $7,513, these costs decreased related to option and stock based consulting and employee compensation expenses, travel, legal fees and investor relations slightly offset by an increase in depreciation and amortization. We expect general and administrative costs will increase as we increase our operations.

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LIQUIDITY AND FINANCIAL CONDITION

Liquidity and Capital Resources

The Company had cash of $1,913 as of June 30, 2020. Our primary uses of cash have been for salaries, fees paid to third parties for professional services, insurance, general and administrative expenses, and the acquisitions and development of rental properties and their improvement. All funds received have been expended in the furtherance of growing the business. We have received funds from financing activities such as from equity offerings and debt financing as well as the proceeds from advances to be contributed to new ventures. The following trends are reasonably likely to result in changes in our liquidity over the near to long term:

● An increase in working capital requirements to finance our entry into the cultivation, production, and sale of cannabis:

● Acquisition and buildout of rental properties;

● Addition of administrative and sales personnel as the business grows and

● The cost of being a public company.

Subsequent to June 30, 2020, we have not raised any additional funds in our private placements. Our efforts to raise additional capital are ongoing and we expect to continue our efforts in the following quarters.

With respect to the company’s investments in the projects pertaining to the equity method investee’s and affiliates, we have committed that we need to spend an estimated $4 million in expansion, buildout and improvements potentially in the near term. These capital expenditures are contingent upon several factors including the Company obtaining financing for the development of the properties and the construction of the tenant improvements in such amount and on such terms and provisions as are acceptable to the Company.

On January 6, 2020, the Company issued a convertible promissory note to Community Growth Partners Holdings, Inc., (“CGS”) which will act as a line of credit. Subject to the terms and conditions of the note, CGS promises to pay the Company all of the outstanding principal together with interest on the unpaid principal balance upon the date that is twelve months after the effective date and shall be payable as follows: (a)The Company agrees to make several loans to CGS from time to time upon request of CGS in amounts not to exceed the principal sum of $2,000,000, (b) Payment of principal and interest shall be immediately available funds, (c) This note may be prepaid in whole or in part at any time without premium or penalty. Any partial prepayment shall be applied against the principal amount outstanding, (d) The unpaid principal amount outstanding under this note shall bear interest commencing upon the first advance at the rate of 10% per annum through the maturity date, calculated on the basis of a 365-day, until the entire indebtedness is fully paid, (e) Upon the closing of a $2,000,000 financing by the Company, all of the principal and interest shall automatically convert into equity shares of CGS at the price obtained by the qualified financing. Balance outstanding as of June 30, 2020 is approximately $600,000 leaving $1,400,000 availability to fund.

As of December 23, 2019 has entered into a stock purchase agreement with Attollo Capital Holdings A, LLC (the “Purchaser”) pursuant to which Stem will issue 11,764,706 shares of preferred stock of the Company (the “Preferred Stock”) at a purchase price of US$0.85 per share of Preferred Stock (the “Original Issue Price”) for gross proceeds to the Company of approximately US$10,000,000 (the “Investment”). As of the date of this filing, the Company has not yet closed on this transaction.

We have used our available funds to fund our operating expenses, pay our obligations, acquire and develop rental properties, and grow our company. We need to raise significant additional capital or debt financing to acquire new properties, to develop existing properties, and to assure we have sufficient working capital for our ongoing operations and debt obligations. There is no guarantee that such funding will be available to the Company at a viable cost, if at all.

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Cash Flow

For the nine months ended June 30, 2020 and 2019

Net cash flows used in operating activities was $4,053 for the nine months ended June 30,2020 as compared net cash flow used in operating activities to $4,117 for the nine months ended June 30, 2019, a change of $295.

● Net cash flow used in operating activities for the nine months ended June 30, 2020 primarily reflected a net loss of $9,033 adjusted for the add-back of non-cash items consisting of depreciation and amortization of $1,632, stock-based compensation expense of $1,913, non-cash interest $953 and a loss of $253 from equity method investee, and a change operating assets and liabilities consisting of an increase in accounts receivable of $267, an increase in prepaid expenses of $539, an decrease in inventory of $163 and a decrease in other assets of 83 coupled with an increase in accounts payable of $488.

● Net cash flow used in investing activities for the nine months ended June 30, 2020 amounted to $750 and consisted of $60 in related party advances, $349 cash acquired in acquisition, and $229 return of cash of equity method investees, offset by $433 used in the purchase of property and equipment and $955 in advances to related parties.

● Net cash provided by financing activities was $3,377 for the nine months ended June 30, 2020 as compared to $3,061 for the nine months ended June 30, 2019. During the nine months ended June 30, 2020, we received proceeds from notes payable and advances of $4,596 and other proceeds of $81. Additionally, an offset of $1,300 of payment on notes payable was incurred.

CRITICAL ACCOUNTING POLICIES

Basis of preparation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed financial statements included herein are unaudited. Such financial statements, in the opinion of management, contain all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the year ending September 30, 2020 or for any other period. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, and because of this, for further information, readers should refer to the financial statements and footnotes included in our Form 10-K for the fiscal year ended September 30, 2019 filed with the Securities and Exchange Commission on March 2, 2020. The Company believes that the disclosures are adequate to make the interim information presented not misleading.

Principals of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Stem Holdings, Inc. and its wholly-owned or controlled operating subsidiaries, Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco, LLC, Stem Agri, LLC., Stem Group Oklahoma, Inc. and Stem Holdings Florida, Inc. All material intercompany accounts, transactions, and profits have been eliminated in consolidation.

Use of estimates

The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and judgments used are based on management’s experience and the assumptions used are believed to be reasonable given the circumstances that exist at the time the financial statements are prepared. The significant estimates included in these financial statements are those associated with the assumptions used to value equity instruments, valuation of its properties for impairment testing and the deferral of rents. Actual results may differ from these estimates.

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Revenue recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping and handling costs are included in cost of product sales.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

As noted earlier in Note 1, the Company, engages in a business that constitutes an illegal act under the laws of the United States Federal Government. This raises several possible issues which may impact the Company’s overall operations, not the least of which are related to traditional banking and other key operational risks. Since cannabis remains illegal on the federal level, and most traditional banks are federally insured, those financial institutions will not service cannabis businesses. In states where medical or recreational marijuana is legal, dispensary owners, manufacturers, and anybody who “touches the plant,” continue to face a host of operational hurdles. While local, state-chartered banks and credit unions now accept cannabis commerce, there remains a reluctance by traditional banks to do business with them. Aside from a huge inconvenience and the need to find creative ways to manage financial flow, payroll logistics, and payment of taxes, this also poses tremendous risks to controls as a result of operating a lucrative business in cash. This lack of access to traditional banking may inhibit industry growth. In the period ended March 31, 2020, the Company’s accounts with a major money center bank were closed as the bank would not allow the Company to continue to use its banking network.

Despite the uncertainties surrounding the Federal government’s position on legalized marijuana, the Company does not believe these risks will have a substantive impact on its planned operations in the near term.

As of June 30, 2020, the Company has acquired interests in several entities. As part of those interests, the Company has commitments to fund the acquisition of licenses and permits to allow for the cultivation and sale of cannabis and related products in the United States and Eswatini. As of June 30, 2020, the Company estimates that its investees will need up to approximately $4 million to complete the acquisition of licenses and permits, to fund the buildout or expansion of facilities to fully operate in their respective cannabis markets, which will encompass several years of development.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

36

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this report, have concluded that our disclosure controls and procedures are not effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s Rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The principal basis for this conclusion is the lack of segregation of duties within our financial function and the lack of an operating Audit Committee.

(b) Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

D.H. Flamingo, Inc. v. Department of Taxation, et. al.

On February 27, 2020, a subsidiary of the Company (YMY Ventures, LLC) was served with a Summons and Second Amended Complaint in a matter pending in the District Court of Clark County Nevada (Case # A-19-787004-B) which is styled “D.H. Flamingo, Inc. v. Department of Taxation, et. al.” (the DOT Litigation”). In this matter, the Plaintiff is alleging that certain parties (including YMY Ventures, LLC) received Conditional Recreational Marijuana Establishment Licenses, while certain other parties (including Plaintiff) were denied licenses. In the matter, Plaintiff seeks declaratory relief, injunctive relief, relief from violation of procedural and substantive due process, violation of equal protection, unjust enrichment, judicial review of the entire matter, together with a Petition for Writ of Mandamus. The Plaintiff seeks damages in an unspecified amount. Thereafter, on April 20, 2020, YMY Ventures, LLC filed a Notice of Non-Participation and Request for Dismissal. The Company believes it will ultimately be dismissed from the action without any liability exposure. Notwithstanding, there is no guarantee at this time that this will occur, and the ultimate result of the matter could potentially be the loss of YMY Ventures, LLC’s Conditional Recreational Marijuana Establishment License. The Company believes that this result would be highly unlikely and that the matter will be fully resolved as to YMY Ventures, LLC in the near term.

Chord Advisors, LLC v. Stem Holdings, Inc., et. al.

On June 5, 2020 Chord Advisors, LLC (“Chord”) filed a Complaint in the Circuit Court of the Fifteenth Judicial District in and for Palm Beach County, Florida (Case # 502020CA006097) alleging that Stem Holdings, Inc. owes Chord approximately $260,000 on account of fees for accounting services accrued pursuant to a Letter of Agreement dated October 2019. On July 6, 2020, the Company filed an Answer and Affirmative Defenses to the Complaint. This matter is in its early stages and, while the Company believes that it has meritorious defenses to the matters detailed in the Complaint, it is impossible to predict the outcome of the matter.

Lili Enterprises, LLC adv. YMY Ventures and OPCO, LLC

In July 2020, a dispute arose with the Company’s joint venture partner in connection with the Company’s operations in the State of Nevada. In this regard, the Company’s joint venture partner claims that it is owed certain amounts totaling approximately $307,500 pursuant to the joint venture Operating Agreement. On the other hand, the Company claims that the joint venture partner is in breach of its agreements with the Company and that the Company has heretofore advanced over $1 million in excess of its commitments under the Operating Agreement. The operative agreements require the disputes to be arbitrated. The parties have engaged an arbitrator and the matters are set for an arbitration hearing in February 2021. Ultimately, while the Company believes that a settlement will be reached, it is impossible to predict the outcome of the matter.

37

ITEM 1A. RISK FACTORS

Smaller reporting companies are not required to provide the information required by this item. Notwithstanding, in addition to risk factors highlighted in previous reports, the Company adds the following additional risk factor:

We could be substantially affected by the Coronavirus (COVID-19) pandemic

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this quarterly report on Form 10-Q, several states in the United States have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. The existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations disruptions to our retail operations and ou9r ability to collect rent from the properties which we own, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects throughout our business. If we need to close any of our facilities or a critical number of our employees become too ill to work, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the markets in which we operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth all securities issued by Stem between January 1, 2020 and August 14, 2020:

	Security	No. Shares
Compensation	Common Stock		18,750
Share Exchange	Common Stock		386,035
Total			404,785

All of the aforementioned shares were issued by the Company pursuant to an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

38

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Description
31.1/31.2	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) and Rule15d- 14(a) of the Securities Exchange Act of 1934, as amended
32.1/32.2	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

39

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	STEM HOLDINGS, INC.
August 17, 2020	By:	/s/ Adam Berk
		Adam Berk, President and Chief Executive Officer

40

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Adam Berk, certify that:

1.	I have reviewed this Form 10-Q for the period ended June 30, 2020 of Stem Holdings, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 17, 2020

/s/ Adam Berk

Adam Berk

Principal Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Steve Hubbard, certify that:

1.	I have reviewed this Form 10-Q for the period ended June 30, 2020 of Stem Holdings, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 17, 2020

/s/ Steve Hubbard

Steve Hubbard

Principal Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Stem Holdings, Inc., a Nevada corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The quarterly report on Form 10-Q for the period ended June 30, 2020 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 17, 2020
	/s/ Adam Berk
	Adam Berk
	Principal Executive Officer

A signed original of this written statement required by Section 906 has been provided to STEM HOLDINGS, INC. and will be retained by STEM HOLDINGS, INC. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Stem Holdings, Inc., a Nevada corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The quarterly report on Form 10-Q for the period ended June 30, 2020 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 17, 2020
	/s/ Steve Hubbard
	Steve Hubbard
	Principal Financial and Accounting Officer

A signed original of this written statement required by Section 906 has been provided to STEM HOLDINGS, INC. and will be retained by STEM HOLDINGS, INC. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2020	Aug. 14, 2020
Cover [Abstract]
Entity Registrant Name	Stem Holdings, Inc.
Entity Central Index Key	0001697834
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Reporting Status Current	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		65,154,028
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2020

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2020	Sep. 30, 2019
Current assets
Cash and cash equivalents	$ 1,913	$ 3,339	[1]
Accounts receivable, net of allowance for doubtful accounts	694	427	[1]
Note receivable	600		[1]
Inventory	1,353	611	[1]
Prepaid expenses and other current assets	457	491	[1]
Total current assets	5,017	4,868	[1]
Property and equipment, net	16,620	14,706	[1]
Investment in equity method investees	287	1,771	[1]
Investments in affiliates	1,951	1,827	[1]
Deposits and other assets	130	47	[1]
Note receivable, long term	355		[1]
Intangible assets, net	10,360	6,316	[1]
Goodwill	11,613	1,070	[1]
Due from related party	55	492	[1]
Total assets	46,388	31,097	[1]
Current liabilities
Accounts payable and accrued expenses	2,225	1,082	[1]
Convertible notes, net	5,996	1,888	[1]
Short term notes and advances	2,951	3,384	[1]
Acquisition notes payable	679	708	[1]
Contingent acquisition liability	1,084
Due to related party	666		[1]
Derivative liability	586	158	[1]
Warrant liability	448	283	[1]
Total current liabilities	14,635	7,503	[1]
Long-term debt, mortgages	3,085		[1]
Total liabilities	17,720	7,503	[1]
Commitments and contingencies (Note 16)			[1]
Shareholders' equity
Common stock, $0.001 par value; 300,000,000 shares authorized; 66,616,526 and 52,254,941 shares issued, issuable and outstanding as of June 30, 2020 and September 30, 2019, respectively	67	52	[1]
Additional paid-in capital	75,369	61,202	[1]
Accumulated deficit	(48,952)	(40,384)	[1]
Total Stem Holdings stockholder's equity	26,484	20,870	[1]
Noncontrolling interest	2,184	2,724	[1]
Total shareholders' equity	28,668	23,594	[1]
Total liabilities and shareholders' equity	46,388	31,097	[1]
Series A Preferred Stock [Member]
Shareholders' equity
Preferred stock, Value			[1]
Series B Preferred Stock [Member]
Shareholders' equity
Preferred stock, Value			[1]

[1] Derived from audited information

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2020	Sep. 30, 2019
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	66,616,526	52,254,941
Common stock, shares outstanding	66,616,526	52,254,941
Series A Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares outstanding
Series B Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares outstanding

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Gross Revenue	$ 6,696	$ 621	$ 10,315	$ 1,314
Discounts and returns	1,498		1,498
Net Revenue	5,198	621	8,817	1,314
COGS	3,420	258	6,062	258
Gross Profit	1,778	363	2,755	1,056
Operating expenses:
Consulting fees	124	115	2,031	297
Professional fees	257	418	1,780	1,269
General and administration	2,176	2,948	6,234	7,513
Total operating expenses	2,557	3,481	10,045	9,079
Loss from operations	(779)	(3,118)	(7,290)	(8,023)
Other income (expenses), net
Interest expense	(753)	(306)	(2,024)	(1,105)
Inducement cost				(824)
Change in fair value of derivative liability	(570)		(428)
Change in fair value of warrant liability	969		754
Foreign currency exchange gain	187		208
Gain on forgiveness of debt		40		40
Total other income (expense)	(167)	(266)	(1,490)	(1,889)
Loss from equity method investees	(1)	(309)	(253)	(467)
Net loss	(947)	(3,693)	(9,033)	(10,379)
Net loss attributable to non-controlling interest	(121)		(466)
Net loss attributable to Stem Holdings	$ (826)	$ (3,693)	$ (8,567)	$ (10,379)
Net loss per share, basic and diluted	$ (0.01)	$ (0.10)	$ (0.15)	$ (0.48)
Weighted-average shares outstanding, basic and diluted	66,410,900	36,221,702	58,762,599	21,667,002

XML

Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Total Stem Holdings Shareholders' Equity [Member]	Non-Controlling Interest [Member]	Total
Balance at Sep. 30, 2018	$ 10	$ 19,810	$ (11,533)	$ 8,287		$ 8,287
Balance, shares at Sep. 30, 2018	10,177,496
Common stock issued in connection with conversion of notes payable	$ 1	2,574		2,575		2,575
Common stock issued in connection with conversion of notes payable, shares	1,430,556
Exercise of stock options
Exercise of stock options, shares	(15,662)
Yerba Buena acquisition	$ 2	4,440		4,442		4,442
Yerba Buena acquisition, shares	1,931,506
Asset Purchase Agreement- 399 & 451 Wallis St and Applegate		978		979		979
Asset Purchase Agreement- 399 & 451 Wallis St and Applegate, shares	457,191
Investment in YMY		450		450		450
Investment in YMY, shares	187,500
Canaccord fee		35		35		35
Canaccord Fee, shares	16,666
Inducement cost to convert convertible notes		824		824		824
Debt discount for warrants		84		84		84
Issuance of Canaccord warrants		483		483		483
Stock based compensation	$ 1	1,746		1,747		1,747
Stock based compensation, shares	669,233
Net loss			(4,167)	(4,167)		(4,167)
Balance at Dec. 31, 2018	$ 15	31,424	(15,700)	15,739		15,739
Balance, shares at Dec. 31, 2018	14,854,486
Balance at Sep. 30, 2018	$ 10	19,810	(11,533)	8,287		8,287
Balance, shares at Sep. 30, 2018	10,177,496
Net loss						(10,379)
Balance at Jun. 30, 2019	$ 42	56,132	(22,186)	33,987		33,987
Balance, shares at Jun. 30, 2019	41,645,504
Balance at Sep. 30, 2018	$ 10	19,810	(11,533)	8,287		8,287
Balance, shares at Sep. 30, 2018	10,177,496
Balance at Sep. 30, 2019	$ 52	61,202	(40,384)	20,870	2,724	23,594	[1]
Balance, shares at Sep. 30, 2019	52,254,941
Balance at Dec. 31, 2018	$ 15	31,424	(15,700)	15,739		15,739
Balance, shares at Dec. 31, 2018	14,854,486
Debt discount for warrants		1,027		1,027		1,027
Stock based compensation	$ 1	1,289		1,289		1,289
Stock based compensation, shares	493,329
Common stock issued for investment (South African Ventures)	$ 8	14,017		14,025		14,025
Common stock issued for investment (South African Ventures), shares	8,250,000
Net loss			(2,793)	(2,793)		(2,793)
Balance at Mar. 31, 2019	$ 24	47,757	(18,493)	29,287		29,287
Balance, shares at Mar. 31, 2019	23,597,815
Yerba Buena acquisition	$ 1	(580)		(579)		(579)
Yerba Buena acquisition, shares	560,760
Stock based compensation	$ 1	1,711		1,712		1,712
Stock based compensation, shares	886,929
Common Stock issued for Investment (West Coast Ventures)	$ 3	4,433		4,436		4,436
Common Stock issued for Investment (West Coast Ventures), shares	2,500,000
Common Stock issued for Related Party Acquisition (CVO)	$ 3			3		3
Common Stock issued for Related Party Acquisition (CVO), shares	3,173,793
Common Stock issued for Related Party Acquisition (OPCO)	$ 9			9		9
Common Stock issued for Related Party Acquisition (OPCO), shares	9,326,207
Common Stock to be issued for officers employment agreement	$ 1	2,811		2,812		2,812
Common Stock to be issued for officers employment agreement, shares	1,600,000
Net loss			(3,693)	(3,693)		(3,693)
Balance at Jun. 30, 2019	$ 42	56,132	(22,186)	33,987		33,987
Balance, shares at Jun. 30, 2019	41,645,504
Balance at Sep. 30, 2019	$ 52	61,202	(40,384)	20,870	2,724	23,594	[1]
Balance, shares at Sep. 30, 2019	52,254,941
Stock based compensation	$ 1	497		498		498
Stock based compensation, shares	100,000
Issuance of common stock in connection with consulting agreement		4		4		4
Issuance of common stock in connection with consulting agreement, shares	5,000
Issuance of common stock in connection with asset acquisitions		394		394		394
Issuance of common stock in connection with asset acquisitions, shares	394,270
Net loss			(3,077)	(3,077)	(235)	(3,312)
Balance at Dec. 31, 2019	$ 53	62,097	(43,461)	18,689	2,489	21,178
Balance, shares at Dec. 31, 2019	52,754,211
Balance at Sep. 30, 2019	$ 52	61,202	(40,384)	20,870	2,724	$ 23,594	[1]
Balance, shares at Sep. 30, 2019	52,254,941
Stock based compensation, shares						18,750
Net loss						$ (9,033)
Balance at Jun. 30, 2020	$ 66	75,369	(48,952)	26,484	2,184	28,668
Balance, shares at Jun. 30, 2020	66,616,526
Balance at Dec. 31, 2019	$ 53	62,097	(43,461)	18,689	2,489	21,178
Balance, shares at Dec. 31, 2019	52,754,211
Stock based compensation		47		47		47
Stock based compensation, shares	303,756
Issuance of common stock in connection with consulting agreement	$ 1	1,548		1,549		1,549
Issuance of common stock in connection with consulting agreement, shares	970,416
Issuance of common stock in connection with asset acquisitions	$ 13	10,009		10,022		10,022
Issuance of common stock in connection with asset acquisitions, shares	12,681,008
Cancellation of common stock in connection with consulting agreement	$ (1)	(699)		(700)		(700)
Cancellation of common stock in connection with consulting agreement, shares	(700,000)
Issuance of common stock related to interest on convertible notes		121		121		121
Issuance of common stock related to interest on convertible notes, Shares	202,350
Derivatives		431		431		431
Net loss			(4,665)	(4,665)	(110)	(4,775)
Balance at Mar. 31, 2020	$ 66	73,554	(48,126)	25,494	2,379	27,873
Balance, shares at Mar. 31, 2020	66,211,741
Balance at Dec. 31, 2019	$ 53	62,097	(43,461)	18,689	2,489	$ 21,178
Balance, shares at Dec. 31, 2019	52,754,211
Common stock issued in connection with conversion of notes payable, shares						12,500,000
Balance at Jun. 30, 2020	$ 66	75,369	(48,952)	26,484	2,184	$ 28,668
Balance, shares at Jun. 30, 2020	66,616,526
Balance at Mar. 31, 2020	$ 66	73,554	(48,126)	25,494	2,379	27,873
Balance, shares at Mar. 31, 2020	66,211,741
Stock based compensation		6		6		6
Stock based compensation, shares	18,750
Issuance of common stock in connection with share exchange agreement		196		197	(74)	124
Issuance of common stock in connection with share exchange agreement, shares	386,035
Consolidated Ventures of Oregon equity		1,613		1,613		1,613
Other						(1)
Net loss			(826)	(826)	(121)	(947)
Balance at Jun. 30, 2020	$ 66	$ 75,369	$ (48,952)	$ 26,484	$ 2,184	$ 28,668
Balance, shares at Jun. 30, 2020	66,616,526

[1] Derived from audited information

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities
Net loss	$ (9,033)	$ (10,379)
Equity method investee losses	253	467
Net loss before equity method investment	(8,780)	(9,912)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	1,913	4,675
Depreciation and amortization	1,632	699
Non-cash interest	953	781
Convertible notes inducement expense		824
Change in fair value of derivative liability	428
Foreign currency translation adjustment	(208)
Other	(317)
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts	267	(568)
Prepaid expenses and other current assets	539	(73)
Inventory	(163)
Other assets	(83)
Accounts payable and accrued expenses	488	159
Deferred revenue		(702)
Net cash used in operating activities	(4,053)	(4,117)
Cash flows from investing activities
Purchase of property and equipment	(433)	(905)
Advances to related entities	(955)	9,550
Return of cash for equity method investees	229	(350)
Cash acquired in acquisition, net of cash transferred	349	(218)
Project costs		(1,479)
Related party advances and repayments received	60	330
Related party advances made		(830)
Investment in affiliates		(27)
Net cash used in investing activities	(750)	6,071
Cash flows from financing activities
Proceeds from advance from NVDRE		300
Proceeds from notes payable and advances	4,596	150
Proceeds from the convertible notes, net of fees paid		3,058
Other	81
Cash paid from loan fees		(103)
Repayments of notes payable	(1,300)	(344)
Net cash (used in) provided by financing activities	3,377	3,061
Net (decrease) increase in cash and cash equivalents	(1,426)	5,015
Cash and cash equivalents at the beginning of the period	3,339	761
Cash and cash equivalents at the end of the period	1,913	5,776
Supplemental disclosure of cash flow information:
Cash paid for interest	421
Supplemental disclosure of noncash activities:
Financed insurance	327	266
Stock issued for services capitalized		4,507
Conversion of debt to equity	121	2,575
Transfer of deposit to fixed assets		126
Deposit YMY stock		450
Deposit Yerba Oregon stock		4,215
Deposit CVO and OPCO stock		12,500
Stock acquisition of South African Ventures		14,025
Stock acquisition of Western Coast Ventures		4,435
Debt discount from warrants and beneficial conversion features		1,912
Projects costs paid in equity		978
Acquisition of Seven LV	14,025
Building acquired from related party with equity, net of lien acquired	394
Consolidation of CVO	1,613
Acquisition of NVDRE interest	$ 386

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Incorporation and Operations and Going Concern

9 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Incorporation and Operations and Going Concern

1. Incorporation and Operations and Going Concern

Stem Holdings, Inc. (“Stem” or the “Company”) is a Nevada corporation incorporated on June 7, 2016. The Company is a multi-state, vertically integrated, cannabis company that purchases, improves, leases, operates and invests in properties for use in the production, distribution and sales of cannabis and cannabis-infused products licensed under the laws of the states of Oregon, Nevada, California and Oklahoma. As of June 30, 2020, Stem had ownership interests in 26 state issued cannabis licenses including nine (6) licenses for cannabis cultivation, three (3) licenses for cannabis production, five (5) licenses for cannabis processing, one (1) license for cannabis wholesale distribution, one (1) license for hemp production and ten (10) cannabis dispensary licenses.

Stem’s partner consumer brands are award-winning and nationally known, and include cultivators, TJ’s Gardens, Travis X James, and Yerba Buena; retail brands, Stem and TJ’s; infused product manufacturers, Cannavore and Supernatural Honey; and a CBD company, Dose-ology. As of June 30, 2020, the Company has acquired nine commercial properties and leased a seventh property, located in Oregon and Nevada, and has entered into leases to related entities for these properties (see Note 15). As of June 30, 2020, the buildout of these properties to support cannabis related operations was either complete or near completion.

The Company has incorporated nine wholly-owned subsidiaries –Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco, LLC, Stem Agri, LLC., Stem Group Oklahoma, Inc. and Stem Holdings Florida, Inc. Stem, through its subsidiaries, is currently in the process of finalizing the investment in and acquisition of entities that engage directly in the production and sale of cannabis, thereby transitioning from a real estate company, with a focus on cannabis industry tenants, to a vertically integrated, multi-state cannabis operating company.

The Company’s stock is publicly traded and is listed on the Canadian Securities Exchange under the symbol “STEM” and the OTCQX under the symbol “STMH”.

Going Concern

As of June 30, 2020, the Company had approximate balances of cash and cash equivalents of $1.9 million, negative working capital of $8.5 million, total stockholders’ equity of $26.4 million and an accumulated deficit of $49 million.

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

While the recreational use of cannabis is legal under the laws of certain States, where the Company has and is working towards further finalizing the acquisition of entities or investment in entities that directly produce or sell cannabis, the use and possession of cannabis is illegal under United States Federal law for any purpose, by way of Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970, otherwise known as the Controlled Substances Act of 1970 (the “ACT”). Cannabis is currently included under Schedule 1 of the Act, making it illegal to cultivate, sell or otherwise possess in the United States.

On January 4, 2018, the office of the Attorney General published a memo regarding cannabis enforcement that rescinds directives promulgated under former President Obama that eased federal enforcement. In a January 8, 2018 memo, Jefferson B. Sessions, then Attorney General of the United States, indicated enforcement decisions will be left up to the U.S. Attorney’s in their respective states clearly indicating that the burden is with “federal prosecutors deciding which cases to prosecute by weighing all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of federal prosecution, and the cumulative impact of particular crimes on the community.” Subsequently, in April 2018, President Trump promised to support congressional efforts to protect states that have legalized the cultivation, sale and possession of cannabis, however, a bill has not yet been finalized in order to implement legislation that would, in effect, make clear the federal government cannot interfere with states that have voted to legalize cannabis. Further in December 2018, the US Congress passed legislation, which the President signed on December 20, 2018, removing hemp from being included with Cannabis in Schedule I of the Act.

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On June 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. The existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations disruptions to our retail operations and ou9r ability to collect rent from the properties which we own, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects throughout our business. If we need to close any of our facilities or a critical number of our employees become too ill to work, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the markets in which we operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. Should the United States Federal Government choose to begin enforcement of the provisions under the Act, the Company through its wholly owned subsidiaries could be prosecuted under the Act and the Company may have to immediately cease operations and/or be liquidated upon their closing of the acquisition or investment in entities that engage directly in the production and or sale of cannabis.

Management believes that the Company has access to capital resources through potential public or private issuances of debt or equity securities. However, if the Company is unable to raise additional capital, it may be required to curtail operations and take additional measures to reduce costs, including reducing its workforce, eliminating outside consultants and reducing legal fees to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

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Summary of Significant Accounting Policies

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed financial statements included herein are unaudited. Such financial statements, in the opinion of management, contain all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the year ending September 30, 2020 or for any other period. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, and because of this, for further information, readers should refer to the financial statements and footnotes included in its amended Form 10-K for the fiscal year ended September 30, 2019 filed on March 19, 2020. The Company believes that the disclosures are adequate to make the interim information presented not misleading.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The most significant estimates included in these condensed consolidated financial statements are those associated with the assumptions used to value equity instruments, derivative liabilities and valuation of its long live assets for impairment testing. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable given the circumstances that exist at the time the financial statements are prepared. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Principals of Consolidation

The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the outstanding voting stock. In addition, the Company consolidates entities that meet the definition of a variable interest entity (“VIE”) for which it is the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third party’s holding of equity interest is presented as noncontrolling interests in the Company’s condensed consolidated balance sheets and condensed consolidated statements of changes in stockholders’ equity. The portion of net loss attributable to the noncontrolling interests is presented as net loss attributable to noncontrolling interests in the Company’s condensed consolidated statements of operations.

In August 2016, the Company and certain shareholders of the Company entered into a “Multi Party” Agreement, in which the Company became obligated to lease or acquire three separate real estate assets, and separately, if certain events occur, additional real estate assets held by entities related to those shareholders. The Agreement also gives the Company the right of first refusal in regard to certain properties owned by the persons and entities affiliated with the parties of the Agreement so long as certain targets are met. In the quarter ended June 30, 2019, the Company issued 12,500,000 shares of its common stock (shares are held in escrow) as it is currently attempting to acquire the set of entities that include Consolidated Ventures of Oregon, LLC (“CVO”) and Opco Holdings, LLC (“Opco”) which comprise the entities within the Multi Party Agreement. In addition, the Company is also currently negotiation with the owners of certain properties contained within the Multi Party Agreement. The Company and owners of CVO and Opco have finalized their agreements, and are waiting for regulatory approval to transfer certain licenses, which has not yet occurred as of the date of this filing, or the date of these consolidated financial statements, however, the Company does believe it will complete the acquisition in the current calendar year. Should the acquisition be completed, the Company will no longer be engaged primarily in property rental operations, but will take over the operations of its primary renters, which is the cultivation, production and sale of cannabis and related productions. Because CVO and Opco are related to the Company, should the acquisition occur, it will not be accounted for as a business combination at fair value under the codification sections of ASC 805. The assets and liabilities will transfer at their historical cost and the company will include the operations of CVO and Opco for all periods presented. The Company has therefore recorded the par value of the shares issued of $12,500 as of September 30, 2019. As of September 30, 2019, the Company has consolidated the entities with the Opco Holdings Group.  As of June 30, 2020, the Company has consolidated the entities within the CVO group as it has determined that they are now material.

The accompanying unaudited condensed consolidated financial statements include the accounts of Stem Holdings, Inc. and its wholly-owned subsidiaries, Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco, LLC, Stem Agri, LLC., Stem Group Oklahoma, Inc, Stem Holdings Florida, Inc. (what about foothills, SAV and WCV)  In addition, the Company has consolidated YMY Ventures, LLC, NVDRE, Inc., Opco Holdings, Inc. and its subsidiaries  and CVO and its subsidiaries under the variable interest requirements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation.

Loss per Share

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net loss per share of common stock excludes dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net loss per share is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2020 is as follows:

Convertible notes	3,924,075
Options to purchase common stock	4,747,916
Unvested restricted stock awards	1,392,922
Warrants to purchase common stock	4,564,733
	14,629,646

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping and handling costs are included in cost of product sales.

Effective October 1, 2019, the Company adopted the requirements of ASU 2014-09 (ASC 606) and related amendments, using the modified retrospective method. The adoption of ASC 606 did not have a significant impact on the Company’s revenue recognition policy as revenues related to wholesale and retail revenue are recorded upon transfer of merchandise to the customer, which was the effective policy under ASC 605 previously.

The following policies reflect specific criteria for the various revenue streams of the Company:

Revenue is recognized upon transfer of retail merchandise to the customer upon sale transaction.

The Company’s sales environment is somewhat unique, in that once the product is sold to the customer (retail) or delivered (wholesale) there are essentially no returns allowed or warranty available to the customer under the various state laws.

Revenue related to wholesale products is recognized upon receipt by the customer.

Disaggregation of Revenue

In the three and nine months ended June 30, 2019, the Company’s revenue was primarily rental of land, buildings and improvements in nature, and governed primarily under ASC 840. In the three and nine months ended June 30, 2020, all of the Company’s rental revenue is eliminated upon consolidation, and the revenue reported is primarily from the sale of cannabis and related products accounted for under ASC 606.

The following table illustrates our revenue by type related to the three months ended June 30, 2020 and 2019:

Three Months Ended June 30,	2020		2019
Revenue
Wholesale	$	1,595	$	-
Retail		5,072		-
Rental		11		361
Other		18		260
Total revenue		6,696		621
Discounts and returns		1,498		-
Net Revenue	$	5,198	$	621

The following table illustrates our revenue by type related to the nine months ended June 30, 2020 and 2019:

Nine Months Ended June 30,	2020		2019
Revenue
Wholesale	$	2,903	$	-
Retail		7,366		-
Rental		26		1,053
Other		20		261
Total revenue		10,315		1,314
Discounts and returns		1,498		-
Net Revenue	$	8,817	$	1,314

Recent Accounting Guidance

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in Topic 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company’s adoption of this standard on October 1, 2019 did not have a material impact on the Company’s condensed consolidated financial condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry-specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method and will be effective for the Company on October 1, 2019, at which time the Company expects to adopt the updated standard using the modified retrospective approach. The financial information included in the Company’s 2020 Form 10-K will be updated for the October 1, 2019 adoption date; this new guidance will be reflected for the first time in the Company’s 2020 Form 10-K but effective as of October 1, 2019 in that filing. However, the Company will continue to account for revenue recognition under ASC Topic 605 for interim periods in 2020 and will not be required to amend its Form 10-Q filings filed throughout 2020 to reflect the October 1, 2019 adoption date. The guidance allows for the use of one of two retrospective application methods: the full retrospective method or the modified retrospective method. The Company adopted the standard in fiscal year 2020 using the modified retrospective method. The adoption of the standard did not have a material impact on the recognition of revenue.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the Company on October 1, 2020; however, early adoption of the ASU is permitted. The Company is still finalizing its analysis but expects to recognize additional operating liabilities of approximately $1.3 million, with corresponding ROU assets of approximately the same amount as of October 1, 2020 based on the present value of the remaining lease payments.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The amendments are effective for fiscal years beginning after December 15, 2019. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements.

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Property, Plant & Equipment

9 Months Ended

Jun. 30, 2020

Property, Plant and Equipment [Abstract]

Property, Plant & Equipment

3. Property, Plant & Equipment

Property and equipment consist of the following (in thousands):

	June 30,			September 30,
	2020			2019
Land	$	1,451		$	1,451
Automobiles		61			61
Signage		19			19
Furniture and equipment		2,291			2,125
Leasehold improvements		3,306			3,197
Buildings and property improvements		12,628			9,719
Computer software		59			59
		19,815			16,631
Accumulated depreciation		(3,195	)		(1,925	)
Property and equipment, net	$	16,620		$	14,706

Depreciation and amortization expense was approximately $0.5 million and $1.3 million for the three and nine months ended June 30, 2020.

Depreciation and amortization expense was approximately $0.2 million and $0.7 million for the three and nine months ended June 30, 2019.

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Inventory

9 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

Inventory

4. Inventory

Inventory consists of the following (in thousands):

	June 30,		September 30,
	2020		2019
Raw materials	$	844	$	169
Work-in-progress		129		42
Finished goods		380		400
Total Inventory	$	1,353	$	611

The Company’s inventory is related to twelve subsidiaries of which seven are consolidated because of their VIE status, four are wholly owned by the Company and one subsidiary that is 50% owned by the Company. Raw materials and work-in-progress include the costs incurred for cultivation materials and live plants. Finished goods consists of cannabis products ready to be sold. There was no inventory reserve as of June 30, 2020 and September 30, 2019.

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Asset Acquisitions

9 Months Ended

Jun. 30, 2020

Business Combinations [Abstract]

Asset Acquisitions

5. Asset Acquisitions

November 1, 2019, the Company received 100.0% interest in Empire Holdings, LLC (“EH”). EH leases its facilities to Kind Care, LLC. The Company purchased the property for $500,000 less the lien amount of $105,732 paid in kind and issued 394,270 shares of its common stock in satisfaction of the purchase price.

For the period ended June 2020, the Company acquired Seven Leaf Ventures Corp. (“7LV”), a private Alberta corporation, and its subsidiaries, pursuant to the terms of a share purchase agreement dated March 6, 2020. 7LV owns Foothills Health and Wellness, a medical dispensary, in the greater Sacramento, California area. In connection with the acquisition, the Company issued 11,999,008 shares of common stock to former shareholders of 7LV (“7LV Shares”). The Company issued an aggregate 682,000 shares and replaced 10% unsecured convertible debentures in the aggregate principal amount of C4,571,170 ($3,410,000 USD) (the “Replacement Debentures”), convertible into shares at a conversion price of C$1.67 per share at any time prior to May 3, 2021, to former holders of unsecured convertible debentures of 7LV. As part of the Acquisition, the Company assumed the obligations of 7LV with respect to the common share purchase warrants of 7LV outstanding on the closing of the acquisition, subject to appropriate adjustments to reflect the exchange ratio. Accordingly, the Company has assumed 1,022,915 common share purchase warrants (the “Warrants”), exercisable into shares at an exercise price of C$2.08 per share at any time prior to May 3, 2021, 299,975 Warrants, exercisable into shares at an exercise price of C$4.17 per share at any time prior to December 30, 2020 and 999,923 Warrants, exercisable into shares at an exercise price of C$0.50 at any time prior to October 10, 2020. Following the completion of the acquisition, 7LV is now a wholly-owned subsidiary of the Company. Certain shareholders of 7LV, who collectively held approximately 74.5% of the 7LV Shares outstanding at the closing of the acquisition, have agreed to a contractual lock-up pursuant to which such shareholders will not transfer 25% of the Company’s shares received as part of the acquisition until approximately 90 days following the acquisition by 7LV of the Sacramento California Dispensary.

With respect to the $3,410 of convertible debt acquired in the acquisition noted above, the Company agreed to issue to the Seven Leaf debenture holders a First Supplemental Indenture dated March 6, 2020. This instrument is entered into for the purpose of providing for the issue of additional debentures in an initial aggregate principal amount of $3,410 designated as 10 percent unsecured convertible debentures under the indenture and establishing the terms, provisions, and conditions of the 10 percent debentures.

The table below represents unaudited pro forma revenue and operating loss as if the acquisition of 7LV had occurred in September 2019.

	Nine months ended June 30, 2020
Revenues	$	5,672
Operating loss	$	(25,292	)

The following table presents a preliminary allocation of the purchase price to the net assets acquired, inclusive of intangible assets, with the excess fair value recorded to goodwill.  The goodwill is not deductible for tax purposes. These estimates are provisional in nature and adjustments may be recorded in future periods as appraisals and other valuation reviews are finalized.   Any necessary adjustments will be finalized within one year from the date of acquisition (in thousands).

Consideration Paid (in thousands)
Estimated fair value of common stock issued	$	10,022
Estimated fair value of warrants issued		653
Estimated fair value of debt issued		3,410
Contingent consideration		1,084
Total consideration paid	$	15,169
Assets acquired: (in thousands)
Cash and cash equivalents	$	81
Accounts Receivable, net		-
Inventory		131
Prepaid expenses and other current assets		12
Goodwill		10,543
Intangible assets		4,474
Total assets acquired	$	15,241
Liabilities assumed: (in thousands)
Accrued expenses and other current liabilities		72
Total liabilities assumed	$	72
Net assets acquired (in thousands)	$	15,169

As part of the Seven LV acquisition, on the anniversary date of the closing, the Company shall pay the seller additional consideration for the purchase price not greater than $1,220,000 based on achieving revenue of $5,000,000 or greater. As of June 30, 2020, the Company has recorded the contingent liability in the amount of $1,084.

As of May 2020, the Company entered into a Share Exchange Agreement with the NVDRE shareholders to exchange their shareholdings that represent 12.5 percent of NVDRE in exchange for the issuance of the Company’s common stock. The exchange amounted to the issuance of 386,035 shares of the Company’s common stock valued and recorded to investment at $196,000.

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Notes Receivable

9 Months Ended

Jun. 30, 2020

Noncontrolling Interest [Abstract]

Notes Receivable

6. Notes Receivable

On January 4, 2020, the Company issued a $355,000 promissory note to Community Growth Partners Holdings, Inc., (“CGS”). CGS is a cannabis license holder in Massachusetts. Subject to the terms and conditions of the note, CGS promises to pay the Company all of the outstanding balance together with interest upon the first to occur of (i) the closing of the initial capital equity contribution made by the Company in GCS or (ii) the date that is nine months after the opening of the Great Barrington Dispensary which is planned to open sometime this summer.

On January 6, 2020, the Company issued a convertible promissory note to Community Growth Partners Holdings, Inc., (“CGS”) which will act as a line of credit. Subject to the terms and conditions of the note, CGS promises to pay the Company all of the outstanding principal together with interest on the unpaid principal balance upon the date that is twelve months after the effective date and shall be payable as follows: (a)The Company agrees to make several loans to CGS from time to time upon request of CGS in amounts not to exceed the principal sum of $2,000,000, (b) Payment of principal and interest shall be immediately available funds, (c) This note may be prepaid in whole or in part at any time without premium or penalty. Any partial prepayment shall be applied against the principal amount outstanding, (d) The unpaid principal amount outstanding under this note shall bear interest commencing upon the first advance at the rate of 10% per annum through the maturity date, calculated on the basis of a 365-day, until the entire indebtedness is fully paid, (e) Upon the closing of a $2,000,000 financing by the Company, all of the principal and interest shall automatically convert into equity shares of CGS at the price obtained by the qualified financing. Balance outstanding as of June 30, 2020 is approximately $600,000.

On January 6, 2020, the Company issued a revolving credit promissory note to Community Growth Partners Holdings, Inc., (“CGS”) which will act as a second line of credit once the convertible prom note is fulfilled. Subject to the terms and conditions of the note, CGS promises to pay the Company, on the fourth anniversary of the effective date, the lesser of $2,500,000 or the aggregate unpaid principal balance amount of the loans made by the Company to CGS from time to time in accordance with the terms together with interest on the unpaid balance.

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Non-Controlling Interests

9 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Non-Controlling Interests

7. Non-Controlling Interests

Non-controlling interests in consolidated entities are as follows (in thousands):

	As of June 30, 2020
	NCI Equity Share		Net Loss Attributable to NCI			NCI in Consolidated Entities		Non-Controlling Ownership %
NVD RE Corp.	$	916	$	(43	)	$	873		50.0	%
Western Coast Ventures, Inc.	$	1,287		(192	)		1,095		49.0	%
YMY Ventures, Inc.	$	447		(231	)		216		50.0	%
	$	2,650	$	(466	)	$	2,184

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Intangible Assets, Net

9 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets, net

8. Intangible Assets, net

Intangible assets as of June 30, 2020 (in thousands):

	Estimated Useful Life		Cannabis Licenses		Tradename		Customer Relationship		Non-compete		Accumulated Amortization			Net Carrying Amount
Balance as September 30, 2019			$	5,814	$	147	$	135	$	220	$	-		$	6,316
YMY Ventures (1)		15		-		-		-		-		(38	)		(38	)
Western Coast Ventures, Inc. (1)		15		-		-		-		-		(122	)		(122	)
Yerba Buena		3-15 years		-		-		-		-		(172	)		(172	)
Foot Hills		15		4,474								(98	)		4,376
Other		5		-		-		-		-		-			-
Balance as June 30, 2020			$	10,288	$	147	$	135	$	220	$	(430	)	$	10,360

(1) These represent provisional licenses that the Company acquired during the fiscal years ended September 30, 2019 and 2018. Once these licenses are approved by their respective regulatory bodies, the Company will amortize these cannabis licenses over a 15-year estimated useful life. Amortization expense for the three and nine months ended June 30, 2020 was $172 and $430, respectively.

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Related Party

9 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

Related party

9. Related party

In the period ended June 30, 2020, the Company was advanced $490 by the parent company of 7LV.

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Accounts Payable and Accrued Expenses

9 Months Ended

Jun. 30, 2020

Payables and Accruals [Abstract]

Accounts Payable and Accrued Expenses

10. Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following (in thousands):

	June 30, 2020		September 30, 2019
Accounts payable	$	1,663	$	707
Accrued credit cards		38		31
Accrued interest		133		106
Other		393		238
Total Accounts Payable and Accrued Expenses	$	2,226	$	1,082

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Notes Payable and Advances

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Notes Payable and Advances

11. Notes Payable and Advances

The following table summarizes the Company’s notes, mortgages, and advances as of June 30, 2020 and September 30, 2019 (in thousands):

	June 30,		September 30,
	2020		2019
Equipment financing	$	30	$	33
Insurance financing		174		160
Mortgages payable		1,259		2,191
Promissory note		1,489		1,000
	$	2,952	$	3,384
Acquisition notes payable		679		708
Total notes payable and advances	$	3,631	$	4,092
Long-term mortgages		3,085

Equipment financing

Effective May 29, 2018, the Company entered into a 24-month premium finance agreement in consideration for a MT85 wide track loader in the principal amount of $27,844. The note bears no annual interest rate and requires the Company to make 24 monthly payments of $1,160 over the term of the note. As of June 30, 2020, the obligation has been paid. No amount was recorded for the premium for the non- interest-bearing feature of the note as it was immaterial.

Effective April 29, 2018, the Company entered into a 36-month premium finance agreement in consideration for a John Deere Gator Tractor in the principal amount of $15,710. The note bears no annual interest rate and requires the Company to make thirty-nine monthly payments of $442 over the term of the note. As of June 30, 2020, the obligation outstanding is $4,425. No amount was recorded for the premium for the non-interest-bearing feature of the note as it was immaterial. The note is secured by the equipment financed.

November 2017, the Company entered into a promissory note in the amount of $21,749 from a vendor of the Company to finance the acquisition of a security electronics system in one of its properties. The promissory note bears an interest rate of 18% per annum and also contains a 10% servicing fee. The note matures 24 months after issuance and is secured by certain security electronics purchased with proceeds of the note. This vendor is currently in a restructuring and is likely to go out of business. As of June, 2019, the Company has been notified that the vendor holding the note is in bankruptcy and during the year ended September June, 2019, the Company withheld payment under the note. The obligation remains outstanding at $14,950 as of June 30, 2020.

Upon acquisition of Yerba Buena on June 24, 2019, the Company assumed the liability of a 2017 tractor with a balance of approximately $18,000. The note bears no annual interest rate and requires the Company to make monthly payments of $482 over the term of the note. As of June 30, 2020, the obligation outstanding is $11,056. No amount was recorded for the premium for the non-interest-bearing feature of the note as it was immaterial. The note is secured by the equipment financed.

Insurance financing

Effective July 30, 2019, the Company entered into a 10-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $63,101. The note bears an annual interest rate of 7.63% and requires the Company to make ten monthly payments of $4,582 over the term of the note. As of June 30, 2020, the obligation has been paid in full.

Effective July 30, 2019, the Company entered into a 10-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $78,900. The note bears an annual interest rate of 7.25% and requires the Company to make ten monthly payments of $5,756 over the term of the note. As of June 30, 2020, the obligation has been paid in full.

Effective June 8, 2019, the Company entered into a 10-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $5,975. The note bears an annual interest rate of 5.75% and requires the Company to make ten monthly payments of $513 over the term of the note. As of June 30, 2020, the obligation was paid in full.

Effective May 24, 2019, the Company entered into a 9-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $11,440. The note bears an annual interest rate of 8.7% and requires the Company to make 9 monthly payments of $1,322 over the term of the note. As of June 30, 2020, the obligation was paid in full.

Effective December 5, 2019, the Company entered into a 12-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $9,490. The note bears an annual interest rate of 8.7% and requires the Company to make 9 monthly payments of $685 over the term of the note. As of June 30, 2020, the obligation outstanding is $1,369.

Effective February 7, 2020, the Company entered into a 12-month premium finance agreement in partial consideration for an insurance policy in the principal amount of $300,150. The note bears an annual interest rate of 7.46%. The Company paid $60,255 as a down payment on February 7, 2020, the note requires the Company to make 9 monthly payments of $22,718 over the remaining term of the note. As of June 30, 2020, the obligation outstanding is $159,024.

Notes payable

In July 2018, the Company entered into an agreement to acquire a 25% interest in East Coast Packers LLC (“ECP”) for the purchase price of $1.5 million, payable in the amount of $500,000 in cash at closing and a note for $1 million. All amounts are payable to ECP. At the time of closing, ECP was a dormant Florida LLC, but owned a citrus fruit dealer license active for the 2015-2016 growing season. This qualified ECP under newly enacted legislation in the state of Florida to apply for a license to produce and sell medical cannabis. Until such time as ECP is granted a medical cannabis license, the $500 paid into ECP may only be expended by ECP in acquiring a medical cannabis license.

In the period ended June 30, 2020, the Company and ECP agreed to unwind the transaction. The Company returned its membership interest, the $1 million promissory note was cancelled and the remaining equity method investment of approximately. $236 was written off to loss from equity method investees on the statement of operations and ECP returned $232 of cash to the Company.

For the quarter ended June 30, 2020, the Company received loan proceeds of $266,820 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated May 01, 2020, between the Company and Transportation Alliance Bank as the lender, matures on May 01, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

The Promissory Note evidencing the PPP Loan contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

For the quarter ended June 30, 2020, the Company’s related entity received loan proceeds of $245,400 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated June 03, 2020, between the Company and Coastal States Bank as the lender, matures on June 03, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

The Promissory Note evidencing the PPP Loan is entered into subject to guidelines applicable to the program and contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

For the quarter ended June 30, 2020, the Company’s subsidiary received loan proceeds of $62,500 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated June 25, 2020, between the Company and First Home Bank as the lender, matures on June 25, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

The Promissory Note evidencing the PPP Loan is entered into subject to guidelines applicable to the program and contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

Mortgages payable

On January 16, 2018 the Company consummated a “Contract for Sale” for a Farm Property in Mulino OR (the “Mulino Property”). The purchase price was $1,700,000 which was reduced by a rental credit of approximately $135,000 which is equivalent to nine months’ rent at $15,000 a month and an additional credit of $9,500 for additional work done on the property. In connection with the purchase of the property, the Company made a cash payment as down payment plus payment of closing costs in the amount of $370,637 and issued a promissory note in the amount of $1,200,000 with a maturity of January 2020. The Company will pay monthly installments of principal and interest (at a rate of 2% per annum) in the amount of $13,500, commencing in July 2018 through the maturity date (January 2020), at which time the entire unpaid principal balance and any remaining accrued interest shall be due and payable in full. No amount was recorded for the premium for the below market rate feature of the note as it was immaterial. The note is secured by a deed of trust on the property. The Company performed an analysis and determined that the rate obtained was below market, however, no premium was recorded as the Company determined it was immaterial. At June 30, 2020, the balance due is $958,500. Currently the Company has received a verbal extension through the next quarter to procure additional financing on this property to pay off the indebtedness.

On February 28, 2018, the Company executed a $550,000 mortgage payable on the Willamette property to acquire additional funds. The mortgage bears interest at 15% per annum. Monthly interest only payments began June 1, 2018 and continue each month thereafter until paid. The entire unpaid balance is due on June 1, 2020, the maturity date of the mortgage, and is secured by the underlying property. The Company paid costs of approximately $28,000 to close on the mortgage. The mortgage terms do not allow participation by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company. The amount outstanding was $550,000 under this mortgage. In June 2020, the Company completed a refinance of this mortgage. In the refinance, the Company entered into a mortgage, secured by the property with an additional personal guaranty of the CEO of the Company, for $700,000 with an annual interest rate of 15%, paid points at closing totaling $42,000 and a maturity date of June 30, 2022

On April 4, 2018, the Company executed a $304,000 mortgage payable on the Powell property to acquire additional funds. At closing $75,000 of the proceeds was put into escrow. The mortgage bears interest at 15% per annum. Monthly interest only payments began May 1, 2018 and continue each month thereafter until paid. The entire unpaid balance is due on April 1, 2020, the maturity date of the mortgage, and is secured by the underlying property. The Company plaid costs of approximately $19,000 to close on the mortgage. The mortgage terms do not allow participations by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company. The amount outstanding was $304,000. In January 2020, the Company completed a refinance of this mortgage. In the refinance, the Company entered into a mortgage, secured by the property with an additional personal guaranty of the CEO plus an assignment of the right and title in all of CEO’s common shares of the Company as collateral under the mortgage, for $400,000 with an annual interest rate of 15%, paid points at closing totaling $24,000 and a maturity date of January 30, 2022.

In April 2018, the Company received a 37.5% interest in NVD RE Corp. (“NVD”) upon its issuance to NVD of a commitment to contribute $1.275 million to NVD which included the purchase price of $600,000 and an additional commitment to pay tenant improvement costs of $675,000. In the year ended September 30, 2019, NVD obtained $300,000 in proceeds from a mortgage on its property. The funds from this mortgage were advanced to the Company. The advance is undocumented, non-interest bearing and due on demand. At June 30, 2020, the balance due totals $300,000.

For the period ended June 2020, the Company executed a $1,585,000 mortgage payable on property located in Oregon to acquire additional funds. The mortgage bears interest at 11.55% per annum. Monthly interest only payments began April 1, 2020 and continue each month thereafter until paid. The entire unpaid balance is due on April 1, 2023, the maturity date of the mortgage, and is secured by the underlying property. The Company paid costs of approximately $120,000 to close on the mortgage. The mortgage terms do not allow participation by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company.

For the period ended June 30, 2020, the Company executed a $400,000 mortgage payable on property located in Oregon to acquire additional funds. The mortgage bears interest at 11.55% per annum. Monthly interest only payments began May 1, 2020 and continue each month thereafter until paid. The entire unpaid balance is due on April 1, 2022, the maturity date of the mortgage, and is secured by the underlying property. The Company paid costs of approximately $38,000 to close on the mortgage. The mortgage terms do not allow participation by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project. The note has been cross guaranteed by the CEO and Director of the Company.

Acquisition Notes Payable

In April 2019, the Company entered into a promissory note with a principal balance of $400,000 related to its acquisition of Yerba Buena, Oregon LLC. The note was issued on April 8, 2019 and is due on April 8, 2021. The note has a coupon interest rate of 8%. As of June 30, 2020, the Company has made payments of $28,093 leaving a balance of $371,907 in Short-term liabilities.

In September 2018, the Company entered into an agreement to acquire 50% of the membership interest of YMY. In connection with this agreement, the Company recorded a note payable of approximately $300,000. As of June 30, 2020, the Company has not made any payments related to this note.

Other Promissory Notes

In January 2020, the Company issued a promissory note with a principal balance of $500,000 to accredited investors (the “Note Holders”). The notes mature in July 2020 and has an annual rate of interest of 12%. In connection with the issuance of the promissory notes, the Company issued the Note Holders 100,000 common stock purchase warrants with a five-year term from the issuance date, $0.85 per.

In January 2020, the Company issued another promissory notes with a principal balance of $500,000 to accredited investors (the “Note Holders”). The notes mature in October 2020 and has an annual rate of interest of 12%. In connection with the issuance of the promissory notes, the Company issued the Note Holders 100,000 common stock purchase warrants with a five-year term from the issuance date, $0.85 per.

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Convertible Debt

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Convertible Debt

12. Convertible debt

8% Convertible notes

Nine-month term

During the year ended September 30, 2018, the Company issued convertible promissory notes with a principal balance of $975,000 to accredited investors (the “Note Holders”). The notes matured in June 2019 and had an annual rate of interest of 8%. Unless the notes are prepaid, the notes will automatically convert at the maturity date into shares of the Company’s common stock at a conversion price of $2.50 per share. In October 2018, the Company offered the convertible note holders the opportunity to receive a reduced conversion price from $2.50 per share to $1.80 per share as an inducement for the Note Holders to convert the notes. As of October 30, 2018, all of the convertible note holders agreed to convert at the reduced price offered by the Company. The Company issued 541,668 shares of common stock in conversion of the notes. The Company recognized an inducement cost associated with the conversion of the convertible promissory notes of approximately $0.368 million with a corresponding credit to additional paid-in capital.

In connection with the issuance of the convertible promissory notes, the Company issued the Note Holders common stock purchase warrants with a three year term from the issuance date, providing the Note Holders the right to purchase 97,500 shares of the Company’s common stock at $2.50 per share, with standard anti-dilution protection. After allocating issuance proceeds to the warrant liability, the effective conversion price of the convertible promissory notes was below the quoted market price of the Company’s common stock. As such, the Company recognized beneficial conversion feature equal to the intrinsic value of the conversion feature on the issuance date, resulting in an additional discount to the initial carrying value of the convertible promissory notes of approximately $0.5 million with a corresponding credit to additional paid-in capital. As of June 30, 2020, the balance of the warrant liability for these debentures is 0.

Twelve-month term

In May and June 2018, the Company issued senior unsecured convertible notes with a principal balance of $1.5 million to accredited investors (the “Note Holders”). The notes matured in May 2019 and had an annual rate of interest at 8%. Accrued interest was payable quarterly in arrears on the fifth day of each calendar quarter. The notes ranked senior to all obligations not designated as a primary obligation by the Company. The Note Holders were entitled to convert all or any amount of the principal balance then outstanding into shares of the Company’s common stock at a conversion price of $2.50 per share. On November 1, 2018, the Company reduced the conversion price from $2.50 per share to $1.80 per share as an inducement for the Note Holders to convert the notes. Since the notes are optionally convertible by the Note Holders, were issued at par value and did not contain any detachable instruments, the effective conversion price is equal to the stated conversion price of $1.80 per share. The Company recognized an inducement cost associated with the conversion of the convertible promissory notes of approximately $0.9 million with a corresponding credit to additional paid-in capital.

During October 2018, the Note Holders fully converted the notes into 833,333 shares of the Company’s common stock and the debt discount related to the notes was fully amortized.

Canaccord

On December 27, 2018, the Company entered into an Agency Agreement (the “Agency Agreement”) for a private offering of up to 10,000 convertible debenture special warrants of the Company (the “CD Special Warrants”) for aggregate gross proceeds of up to CDN$10,000,000 (the “Offering”). The net proceeds of the Offering were used for expansion initiatives and general corporate purposes. The Company’s functional currency is U.S. dollars.

In December 2018 and January 2019, the Company issued 3,121 CD Special Warrants in the first closing of the Offering, at a price of CDN $1,000 per CD Special Warrant, and received aggregate gross proceeds of CDN $3.1 million or $2.3 million USD. In connection with this offering, the Company issued the agents in such offering 52,4June convertible debenture special warrants (the “Broker CD Special Warrants”) as partial satisfaction of a selling commission.

On June 14, 2019, the Company issued 962 CD Special Warrants in the second and final closing of the Offering, at a price of CDN $1,000 per CD Special Warrant, and received aggregate gross proceeds of CDN $1.0 million or $0.7 million USD. In connection with this offering, the Company issued the agents in such offering 5,600 convertible debenture special warrants (the “Broker CD Special Warrants”) as partial satisfaction of a selling commission.

The total aggregate proceeds of the Offering totaled $4.1 million CDN or $3.1 million USD.

Each CD Special Warrant will be exchanged (with no further action on the part of the holder thereof and for no further consideration) for one convertible debenture unit of the Company (a “Convertible Debenture Unit”), on the earlier of: (i) the third business day after the date on which both (A) a receipt (the “Receipt”) for a (final) prospectus (the “Qualification Prospectus”) qualifying the distribution of the Convertible Debentures (as defined below) and Warrants (as defined below) issuable upon exercise of the CD Special Warrants has been issued by the applicable securities regulatory authorities in the Canadian jurisdictions in which purchasers of the CD Special Warrants are resident (the “Canadian Jurisdictions”), and (B) a registration statement (the “Registration Statement”) registering the resale of the common shares underlying the Convertible Debentures and Warrants has been declared effective by the U.S. Securities and Exchange Commission (the “Registration”); and (ii) the date that is nine months following the closing of the Offering. The Company has also provided certain registration rights to purchasers of the CD Special Warrants. The CD Special Warrants were exchanged for Convertible Debenture Units after nine months as U.S. and Canadian registrations were not effective at that time.

Each Convertible Debenture Unit is comprised of CDN $1,000 principal amount 8.0% senior unsecured convertible debenture (each, a “Convertible Debenture”) of the Company and 167 common share purchase warrants of the Company (each, a “Warrant”). Each Warrant entitles the holder to purchase one common share of the Company (each, a “Warrant Share”) at an exercise price of CDN $3.90 per Warrant Share for a period of 24 months following the closing of the Offering (see Note 17).

The Company has agreed to use its best efforts to obtain the Receipt and Registration within nine months following the closing of the Offering. In the event that the Receipt and Registration have not been obtained on or before 5:00 p.m. (PST) on the date that is 120 days following the closing of the Offering, each unexercised CD Special Warrant will thereafter entitle the holder thereof to receive, upon the exercise thereof and at no additional cost, 1.05 Convertible Debenture Units per CD Special Warrant (instead of 1.0 Convertible Debenture Unit per CD Special Warrant). Until the Receipt and Registration have been obtained, securities issued in connection with the Offering (including any underlying securities issued upon conversion or exercise thereof) will be subject to a 6-month hold period from the date of issue. Since the CD Special Warrants were exchanged for Convertible Debenture Units after 6 months as U.S. and Canadian registrations were not effective at that time, the holders received 1.05 Convertible Debenture Units per CD Special Warrant.

The brokered portion of the Offering (CDN $2.5 million, $1.9 million USD) was completed by a syndicate of agents (collectively, the “Agents”). The Company paid the Agents a cash commission equal to 7.0% of the gross proceeds raised in the brokered portion of the Offering. As additional consideration, the Company issued the Agents such number of non-transferable broker convertible debenture special warrants (the “Broker CD Special Warrants”) as is equal to 7.0% of the number of CD Special Warrants sold under the brokered portion of the Offering. Each Broker CD Special Warrant shall be exchanged, on the same terms as the CD Special Warrants, into broker warrants of the Company (the “Broker Warrants”). Each Broker Warrant entitles the holder to acquire one Convertible Debenture Unit at an exercise price of CDN $1,000, until the date that is 24 months from the closing date of the Offering. The distribution of the Broker Warrants issuable upon the exchange of the Broker CD Special Warrants shall also be qualified under the Qualification Prospectus and the resale of the common shares underlying the Broker Warrants will be registered under the Registration Statement. The Company also paid the lead agent a commission noted above of CDN$157,290, corporate finance fee equal to CDN $50,000 in cash and as to $50,000 in common shares of the Company at a price per share of CDN $3.00 plus additional expenses of CDN$20,000. In addition, the Company paid the trustees legal fees of CDN$181,365. In total the Company approx. USD $0.32 million in fees and expenses associated with the offering.

The issuance of the securities was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), for the offer and sale of securities not involving a public offering, Regulation D promulgated under the Securities Act, Regulation S, in Canada to “accredited investors” within the meaning of National Instrument 45106 and other exempt purchasers in each province of Canada, except Quebec, and/or outside Canada and the United States on a basis which does not require the qualification or registration. The securities being offered have not been registered under the Securities Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from the registration requirements.

The Convertible Debenture features contain the following embedded derivatives:

● Conversion Option - The Convertible Debentures provide the holder the right to convert all or any portion of the outstanding principal into common shares of the Company at a conversion price of C$3.00 such that 333.33 common shares are issued for each C$1,000 of principal of Convertible Debentures converted.

● Contingent Put - Upon an Event of Default, the Convertible Debentures settle for cash at the outstanding principal and interest amount (at discretion of the Indenture Trustee or upon request of Holders of 25% or more of principal of the Convertible Debentures).

● Contingent Put - Upon a Change in Control, the Convertible Debentures settle for cash at the outstanding amount and principal and interest * 105% (where Holder accepts a Change of Control Offer).

The conversion option, the contingent put feature upon an Event of Default, and the contingent put feature upon a Change in Control should be bifurcated and recognized collectively as a compound embedded derivative at fair value at inception and at each quarterly reporting period.

A five percent penalty assessed for failure to timely file a registration statement to register the stock underlying the CD special warrants.

The Company valued the warrants granted using the Black-Scholes pricing model and determined that the value at grant date was approximately $424,000 USD (this includes the warrants issued as part of the penalty for failure to timely file the required registration statement under the indenture agreement). The significant assumptions used in the valuation are as follows:

Fair value of underlying common shares	$	1.78 to 2.10
Exercise price (converted to USD)	$	1.125
Dividend yield		-
Historical volatility		115	%
Risk free interest rate		1.40 to 1.90	%

The warrants are not indexed to the Company’s own stock under ASC 815, Derivatives and Hedging. As such, the warrants do not meet the scope exception in ASC 815-10-15-74(a) to derivative accounting and therefore were accounted for as a liability in accordance with the guidance in ASC 815. The warrant liability was recorded at the date of grant at fair value with subsequent changes in fair value recognized in earnings each reporting period.

The table below shows the warrant liability and embedded derivative liability recorded in connection with the Canaccord convertible notes and the subsequent fair value measurement during the nine months ended June 30, 2020 in USD, (in thousands):

	Warrant Liability			Derivative Liability
Balance at September 30, 2019	$	42		$	158
Change in fair value		(7	)		(21	)
Balance at December 31, 2019		35			137
Change in fair value		(15	)		(121	)
Balance at March 31, 2020		20			16
Change in fair value		50			570
Balance at June 30, 2020	$	70		$	586

The table below shows the net amount of convertible notes as of June 30, 2020 in USD (in thousands):

	June 30, 2020
Principal value of 8%, convertible at $0.84 at June 30, 2020, due December 27, 2020
including penalty provision of $155,239	$	2,901
Principal value of 10%, convertible at $1.22 at June 30, 2020, due May 30, 2021 (see note 5)		3,410
Debt discount		(557	)
Cumulative foreign currency impact		242
Carrying value of convertible notes	$	5,996

In April, 2020 the Company received approval of the holders Warrant holders of the warrants and the holders debenture holders of the Convertible Debentures to reprice the convertible securities issued in connection with the Company’s special warrant financing, which closed on December 27, 2018 and June 14, 2019. The share purchase warrants of the Company issued in connection with the financing will be repriced to C$1.50 per Common Share and the convertible debentures of the Company issued in connection with the financing will be repriced to C$1.15 per common share. Additionally, the Debenture holders have approved the following amendments to the terms of the convertible debentures: (i) an extension to the maturity date of the convertible debentures to three years from the date of issuance; and (ii) an amendment to permit the Company to force the conversion of the principal amount of the then outstanding convertible debentures and any accrued and unpaid interest thereof at the new conversion price on not less than June days’ prior written notice if the closing trading price of the shares of common stock of the Company’s common shares exceeds C$1.90 for a period of 10 consecutive trading days on the CSE. The Warrant holders have also approved the inclusion of an early acceleration feature in accordance with the policies of the Canadian Securities Exchange, permitting the Company to accelerate the expiry date of the warrants should the closing trading price of the Common Shares exceed C$1.87 for a period of 10 consecutive trading days on the CSE.

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Fair Value Measurements

9 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

13. Fair Value Measurements

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion feature associated with convertible debt on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:

Level 1 – Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date

Level 2 – Quoted prices in markets that are not active or inputs which are either directly or indirectly observable

Level 3 – Unobservable inputs for the instrument requiring the development of assumptions by the Company

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2020 (in thousands):

	Fair value measured at June 30, 2020
				Quoted	Significant
				prices in active markets	other observable inputs		Significant unobservable inputs
	Fair value			(Level 1)	(Level 2)		(Level 3)
Warrant liability	$	448	$	-	$	-	$448
Embedded derivative liability		586		-		-	586
Total fair value	$	1,034	$	-	$	-	$1,034

There were no transfers between Level 1, 2 or 3 during the nine months ended June 30, 2020.

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended June 30, 2020. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).

				Embedded
	Warrant Liability			Derivative Liability			Total
Balance – September 30, 2019	$	283		$	158		$	441
Warrants granted for stock-based compensation		-			-			-
Change in fair value		(38	)		(21	)		(59	)
Balance - December 31, 2019		245			137			382
Warrants issued pursuant to acquisition (see Note 5)		823						823
Warrants granted for stock-based compensation		105			-			105
Change in fair value		254			(121	)		133
Other		(10	)		-			(10	)
Balance - March 31, 2020		1,417			16			1,433
Change in fair value		(969	)		570			(399	)
Balance - June 30, 2020	$	448		$	586		$	1,034

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of June 30, 2020 is as follows:

	Warrant Liability
	As of June 30, 2020
Strike price	$	0.45
Contractual term (years)		1 to 3
Volatility (annual)		115	%
Risk-free rate		.29	%
Dividend yield (per share)		0	%

	Embedded Derivative Liability
	As of June 30, 2020			As of September, 2019
Strike price	$	1.36		$	0.80
Contractual term (years)		1.5			1.2
Volatility (annual)		122	%		85	%
Risk-free rate		1.36	%		1.68	%
Dividend yield (per share)		0	%		11.12	%

The Company used a lattice based trinomial model developed by Tsiveriotis, K. and Fernades in which the three lattices incorporate (1) the Company’s underlying common stock price; (2) the value of the debt components of the convertible notes; and (3) the value of the equity component of the convertible notes. The main drivers of sensitivity for the model are volatility and the credit spread. The model used will vary by approximately 1.5% for a 4% change in volatility and will vary by less than 1% for each 1% change in credit spread.

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Shareholders' Equity

9 Months Ended

Jun. 30, 2020

Equity [Abstract]

Shareholders' Equity

14. Shareholders’ Equity

Preferred shares

The Company had two series of preferred shares designated with no preferred shares issued and outstanding as of June 30, 2020 and September 30, 2019.

Common shares

As of May 2020, the Company entered into a Share Exchange Agreement with the NVDRE shareholders to exchange their shareholdings that represent 12.5 percent of NVDRE in exchange for the issuance of the Company’s common stock. The exchange amounted to the issuance of 386,030 shares of the Company’s common stock valued and recorded to investment at $196,000 (see note 5).

During the nine months ended June 30, 2020, the Company issued 394,270 shares of its common stock in connection with a Membership Interest Purchase Agreement for real property located in Eugene, Oregon. The agreed upon purchase price was $500 less the lien of $106. The Company acquired the property from a related party and recorded the building at its carrying value of approximately $500. In connection with this transaction the Company issued 394,270 common shares at $1.00 per share.

Pursuant to the acquisition of 7LV, the Company issued 11,999,008 shares of common stock to former shareholders of 7LV. The Company also issued an aggregate 682,000 shares and replacement 10% unsecured convertible debentures in the aggregate principal amount of C$4,571 ($3,410 USD) (the “Replacement Debentures”), convertible into shares at a conversion price of C$1.67 per share at any time prior to May 3, 2021, to former holders of unsecured convertible debentures of 7LV (see note 5).

The Company issued 202,350 common shares for the fair value of $121 in partial payment of interest on convertible notes in connection with the Seven Leaf Ventures Corporation acquisition.

Common stock issuances for compensation:

During the three months ended December 30, 2019, the Company issued 5,000 shares of its common stock related to a consulting agreement for a fair value of approximately $4 or $0.89 per share.

During the three months ended December 30, 2019, the Company issued 100,000 shares of its common stock related to an employment agreement for a fair value of approximately $498.

During the period ended June 30, 2020, the Company issued 970,416 shares of its common stock related to various consulting agreements for a fair value of approximately $850 or $0.88 per share. During the same period, the Company cancelled 700,000 common shares related to consulting agreements.

During the period ended June 30, 2020, the Company issued 303,756 shares of its common stock related to various employment agreements for a fair value of approximately $47.

During the period ended June 30, 2020, the Company issued 18,750 shares of the Company’s common stock valued at $6 as stock-based compensation.

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Stock Based Compensation

9 Months Ended

Jun. 30, 2020

Compensation Related Costs [Abstract]

Stock Based Compensation

15. Stock Based Compensation

Stock Options

The fair value of the Company’s common stock was based upon the publicly quoted price on the date that the final approval of the awards was obtained. The Company does not expect to pay dividends in the foreseeable future so therefore the expected dividend yield is 0%. The expected term for stock options granted with service conditions represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission’s Staff Accounting Bulletin for “plain vanilla” options for options granted in 2019. The expected term for stock options granted with performance and/or market conditions represents the period estimated by management by which the performance conditions will be met. The Company obtained the risk-free interest rate from publicly available data published by the Federal Reserve. The Company uses a methodology in estimating its volatility percentage from a computation that was based on a comparison of average volatility rates of similar companies to a computation based on the standard deviation of the Company’s own underlying stock price’s daily logarithmic returns. The fair value of options granted during the nine months ended June 30, 2020 were estimated using the following weighted-average assumptions:

Options:

	For the Nine Months Ended June 30, 2020
Exercise price		$0.80 - $4.00
Expected term (years)		.5 - 4.0
Expected stock price volatility		108.8% - 188.6	%
Risk-free rate of interest		1.6	%
Expected dividend rate		0	%

A summary of option activity under the Company’s stock option plan for nine months ended June 30, 2020 is presented below:

	Number of Shares		Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of September 30, 2019		3,210,416	$	2.45	$	-		2.1
Granted		1,262,500	$	1.19	$	-		2.3
Outstanding as of December 31, 2019		4,472,916	$	2.09	$	-		2.0
Granted		275,000
Outstanding as of March 31, 2020		4,747,916	$	2.03	$	-		1.66
Granted		-		-		-		-
Outstanding as of June 30, 2020		4,747,916		2.03		-		1.41
Options vested and exercisable		4,435,416	$	2.10	$	-		1.40

Estimated future stock-based compensation expense relating to unvested stock options was approximately $0.3 million as of June 30, 2020. Weighted average remaining contractual life of the options is 2.0 years.

Stock-based Compensation Expense

Stock-based compensation expense for the three and nine months ended June 30, 2020 and 2019 was comprised of the following (in thousands):

	Three months ended June 30,
	2020		2019
Stock grants	$	6	$	3,995
Stock options		-		135
Warrants		-		-
Total stock-based compensation	$	6	$	4,130
		Nine months ended June 30,
		2020		2019
Stock grants	$	1,193	$	5,991
Stock options		615		478
Warrants		105		697
Total stock-based compensation	$	1,913	$	7,166

In the 4^th quarter of fiscal year ended September, 2019, the Company changed its policy for recognizing prepaid fully vested non-employee stock-based compensation. Historically, the Company would initially record a prepaid asset based upon the fair value of the award on the grant date and subsequently record this award over an implicit service period. The Company now expenses at grant all fully vested non-employee stock-based compensation on the grant date as there is no substantive future service period on the grant date. This change in accounting method was applied retrospectively, and this change resulted in an increase in stock-based compensation of $273 for the nine months ended June 30, 2019. This change increased the loss per share by $(0.01) from $(0.46) loss per share to $(0.47) per share for the nine months ended June 30, 2019.

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Commitments and Contingencies

9 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

16. Commitments and Contingencies

As noted earlier in Note 1, the Company, engages in a business that constitutes an illegal act under the laws of the United States Federal Government. This raises several possible issues which may impact the Company’s overall operations, not the least of which are related to traditional banking and other key operational risks. Since cannabis remains illegal on the federal level, and most traditional banks are federally insured, those financial institutions will not service cannabis businesses. In states where medical or recreational marijuana is legal, dispensary owners, manufacturers, and anybody who “touches the plant,” continue to face a host of operational hurdles. While local, state-chartered banks and credit unions now accept cannabis commerce, there remains a reluctance by traditional banks to do business with them. Aside from a huge inconvenience and the need to find creative ways to manage financial flow, payroll logistics, and payment of taxes, this also poses tremendous risks to controls as a result of operating a lucrative business in cash. This lack of access to traditional banking may inhibit industry growth. In the period ended June 30, 2020, the Company’s accounts with a major money center bank were closed as the bank would not allow the Company to continue to use its banking network.

Despite the uncertainties surrounding the Federal government’s position on legalized marijuana, the Company does not believe these risks will have a substantive impact on its planned operations in the near term.

As of June 30, 2020, the Company has acquired interests in several entities. As part of those interests, the Company has commitments to fund the acquisition of licenses and permits to allow for the cultivation and sale of cannabis and related products in the United States and Eswatini. As of June 30, 2020, Company estimates that its investees will need up to approximately $2.5 million to complete the acquisition of licenses and permits, to fund the buildout or expansion of facilities to fully operate in their respective cannabis markets, which will encompass several years of development.

Effective January 2019, the Company entered into a one-year Board Member agreement, and as part of that agreement for services agreed to issue 250,000 shares of the Company’s common stock and 250,000 options priced at $1.00.

D.H. Flamingo, Inc. v. Department of Taxation, et. al.

On February 27, 2020, a subsidiary of the Company (YMY Ventures, LLC) was served with a Summons and Second Amended Complaint in a matter pending in the District Court of Clark County Nevada (Case # A-19-787004-B) which is styled “D.H. Flamingo, Inc. v. Department of Taxation, et. al.” (the DOT Litigation”). In this matter, the Plaintiff is alleging that certain parties (including YMY Ventures, LLC) received Conditional Recreational Marijuana Establishment Licenses, while certain other parties (including Plaintiff) were denied licenses. In the matter, Plaintiff seeks declaratory relief, injunctive relief, relief from violation of procedural and substantive due process, violation of equal protection, unjust enrichment, judicial review of the entire matter, together with a Petition for Writ of Mandamus. The Plaintiff seeks damages in an unspecified amount. Thereafter, on April 20, 2020, YMY Ventures, LLC filed a Notice of Non-Participation and Request for Dismissal. The Company believes it will ultimately be dismissed from the action without any liability exposure. Notwithstanding, there is no guarantee at this time that this will occur, and the ultimate result of the matter could potentially be the loss of YMY Ventures, LLC’s Conditional Recreational Marijuana Establishment License. The Company believes that this result would be highly unlikely and that the matter will be fully resolved as to YMY Ventures, LLC in the near term.

Chord Advisors, LLC v. Stem Holdings, Inc., et. al.

On June 5, 2020 Chord Advisors, LLC (“Chord”) filed a Complaint in the Circuit Court of the Fifteenth Judicial District in and for Palm Beach County, Florida (Case # 502020CA006097) alleging that Stem Holdings, Inc. owes Chord approximately $260,000 on account of fees for accounting services accrued pursuant to a Letter of Agreement dated October 2019. On July 6, 2020, the Company filed an Answer and Affirmative Defenses to the Complaint. This matter is in its early stages and, while the Company believes that it has meritorious defenses to the matters detailed in the Complaint, it is impossible to predict the outcome of the matter.

Lili Enterprises, LLC adv. YMY Ventures and OPCO, LLC

In July 2020, a dispute arose with the Company’s joint venture partner in connection with the Company’s operations in the State of Nevada. In this regard, the Company’s joint venture partner claims that it is owed certain amounts totaling approximately $307,500 pursuant to the joint venture Operating Agreement. On the other hand, the Company claims that the joint venture partner is in breach of its agreements with the Company and that the Company has heretofore advanced over $1 million in excess of its commitments under the Operating Agreement. The operative agreements require the disputes to be arbitrated. The parties have engaged an arbitrator and the matters are set for an arbitration hearing in February 2021. Ultimately, while the Company believes that a settlement will be reached, it is impossible to predict the outcome of the matter.

For the period ended June 2020, the Company entered into a nine-month consulting agreement, and as part of that agreement for professional services, agreed to issue a total of 350,000 shares of the Company’s common stock and $100,000 cash compensation. Pursuant to the agreement, all 350,000 shares of common stock will be restricted securities.

For the period ended 2020, the Company entered into a nine-month consulting agreement, and as part of that agreement for professional services, agreed to issue a total of 100,000 shares of the Company’s common stock and $10,000 cash compensation. Pursuant to the agreement, all 100,000 shares of common stock will be restricted securities

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Subsequent Events

9 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

17. Subsequent Events

In July 2020, the Company’s wholly owned subsidiary in Oregon received loan proceeds of $220,564 pursuant to the Paycheck Protection Program under the CARES Act. The Loan, which was in the form of a promissory note, dated July 09, 2020, between the Company and Cross River Bank as the lender, matures on July 09, 2022 and bears interest at a fixed rate of 1% per annum, payable monthly commencing in six months. Under the terms of the PPP, the principal may be forgiven if the Loan proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, benefits mortgage interest, rent, and utilities. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. In addition, details of the PPP continue to evolve regarding which companies are qualified to receive loans pursuant to the PPP and on what terms, and the Company may be required to repay some or all of the Loan due to these changes or different interpretations of the PPP requirements.

The Promissory Note evidencing the PPP Loan is entered into subject to guidelines applicable to the program and contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the Promissory Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding. We continue to evaluate and may still apply for additional programs under the CARES Act, there is no guarantee that we will meet any eligibility requirements to participate in such programs or, even if we are able to participate, that such programs will provide meaningful benefit to our business.

The Company filed a Registration Statement with respect to the prospective sale of up to 10,000,000 shares of Common Stock which was declared effective by the U.S. Securities Exchange Commission on July 2, 2020.  As of the date of this report, none of the registered shares have been sold and, as a result, there are no proceeds of sales to report.”

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed financial statements included herein are unaudited. Such financial statements, in the opinion of management, contain all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the year ending September 30, 2020 or for any other period. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, and because of this, for further information, readers should refer to the financial statements and footnotes included in its amended Form 10-K for the fiscal year ended September 30, 2019 filed on March 19, 2020. The Company believes that the disclosures are adequate to make the interim information presented not misleading.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The most significant estimates included in these condensed consolidated financial statements are those associated with the assumptions used to value equity instruments, derivative liabilities and valuation of its long live assets for impairment testing. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable given the circumstances that exist at the time the financial statements are prepared. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Principals of Consolidation

Principals of Consolidation

The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the outstanding voting stock. In addition, the Company consolidates entities that meet the definition of a variable interest entity (“VIE”) for which it is the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third party’s holding of equity interest is presented as noncontrolling interests in the Company’s condensed consolidated balance sheets and condensed consolidated statements of changes in stockholders’ equity. The portion of net loss attributable to the noncontrolling interests is presented as net loss attributable to noncontrolling interests in the Company’s condensed consolidated statements of operations.

In August 2016, the Company and certain shareholders of the Company entered into a “Multi Party” Agreement, in which the Company became obligated to lease or acquire three separate real estate assets, and separately, if certain events occur, additional real estate assets held by entities related to those shareholders. The Agreement also gives the Company the right of first refusal in regard to certain properties owned by the persons and entities affiliated with the parties of the Agreement so long as certain targets are met. In the quarter ended June 30, 2019, the Company issued 12,500,000 shares of its common stock (shares are held in escrow) as it is currently attempting to acquire the set of entities that include Consolidated Ventures of Oregon, LLC (“CVO”) and Opco Holdings, LLC (“Opco”) which comprise the entities within the Multi Party Agreement. In addition, the Company is also currently negotiation with the owners of certain properties contained within the Multi Party Agreement. The Company and owners of CVO and Opco have finalized their agreements, and are waiting for regulatory approval to transfer certain licenses, which has not yet occurred as of the date of this filing, or the date of these consolidated financial statements, however, the Company does believe it will complete the acquisition in the current calendar year. Should the acquisition be completed, the Company will no longer be engaged primarily in property rental operations, but will take over the operations of its primary renters, which is the cultivation, production and sale of cannabis and related productions. Because CVO and Opco are related to the Company, should the acquisition occur, it will not be accounted for as a business combination at fair value under the codification sections of ASC 805. The assets and liabilities will transfer at their historical cost and the company will include the operations of CVO and Opco for all periods presented. The Company has therefore recorded the par value of the shares issued of $12,500 as of September 30, 2019. As of September 30, 2019, the Company has consolidated the entities with the Opco Holdings Group.  As of June 30, 2020, the Company has consolidated the entities within the CVO group as it has determined that they are now material.

The accompanying unaudited condensed consolidated financial statements include the accounts of Stem Holdings, Inc. and its wholly-owned subsidiaries, Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco, LLC, Stem Agri, LLC., Stem Group Oklahoma, Inc, Stem Holdings Florida, Inc. (what about foothills, SAV and WCV)  In addition, the Company has consolidated YMY Ventures, LLC, NVDRE, Inc., Opco Holdings, Inc. and its subsidiaries  and CVO and its subsidiaries under the variable interest requirements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation.

Loss Per Share

Loss per Share

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net loss per share of common stock excludes dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net loss per share is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2020 is as follows:

Convertible notes	3,924,075
Options to purchase common stock	4,747,916
Unvested restricted stock awards	1,392,922
Warrants to purchase common stock	4,564,733
	14,629,646

Revenue Recognition

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping and handling costs are included in cost of product sales.

Effective October 1, 2019, the Company adopted the requirements of ASU 2014-09 (ASC 606) and related amendments, using the modified retrospective method. The adoption of ASC 606 did not have a significant impact on the Company’s revenue recognition policy as revenues related to wholesale and retail revenue are recorded upon transfer of merchandise to the customer, which was the effective policy under ASC 605 previously.

The following policies reflect specific criteria for the various revenue streams of the Company:

Revenue is recognized upon transfer of retail merchandise to the customer upon sale transaction.

The Company’s sales environment is somewhat unique, in that once the product is sold to the customer (retail) or delivered (wholesale) there are essentially no returns allowed or warranty available to the customer under the various state laws.

Revenue related to wholesale products is recognized upon receipt by the customer.

Disaggregation of Revenue

Disaggregation of Revenue

In the three and nine months ended June 30, 2019, the Company’s revenue was primarily rental of land, buildings and improvements in nature, and governed primarily under ASC 840. In the three and nine months ended June 30, 2020, all of the Company’s rental revenue is eliminated upon consolidation, and the revenue reported is primarily from the sale of cannabis and related products accounted for under ASC 606.

The following table illustrates our revenue by type related to the three months ended June 30, 2020 and 2019:

Three Months Ended June 30,	2020		2019
Revenue
Wholesale	$	1,595	$	-
Retail		5,072		-
Rental		11		361
Other		18		260
Total revenue		6,696		621
Discounts and returns		1,498		-
Net Revenue	$	5,198	$	621

The following table illustrates our revenue by type related to the nine months ended June 30, 2020 and 2019:

Nine Months Ended June 30,	2020		2019
Revenue
Wholesale	$	2,903	$	-
Retail		7,366		-
Rental		26		1,053
Other		20		261
Total revenue		10,315		1,314
Discounts and returns		1,498		-
Net Revenue	$	8,817	$	1,314

Recent Accounting Guidance

Recent Accounting Guidance

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in Topic 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company’s adoption of this standard on October 1, 2019 did not have a material impact on the Company’s condensed consolidated financial condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry-specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method and will be effective for the Company on October 1, 2019, at which time the Company expects to adopt the updated standard using the modified retrospective approach. The financial information included in the Company’s 2020 Form 10-K will be updated for the October 1, 2019 adoption date; this new guidance will be reflected for the first time in the Company’s 2020 Form 10-K but effective as of October 1, 2019 in that filing. However, the Company will continue to account for revenue recognition under ASC Topic 605 for interim periods in 2020 and will not be required to amend its Form 10-Q filings filed throughout 2020 to reflect the October 1, 2019 adoption date. The guidance allows for the use of one of two retrospective application methods: the full retrospective method or the modified retrospective method. The Company adopted the standard in fiscal year 2020 using the modified retrospective method. The adoption of the standard did not have a material impact on the recognition of revenue.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the Company on October 1, 2020; however, early adoption of the ASU is permitted. The Company is still finalizing its analysis but expects to recognize additional operating liabilities of approximately $1.3 million, with corresponding ROU assets of approximately the same amount as of October 1, 2020 based on the present value of the remaining lease payments.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The amendments are effective for fiscal years beginning after December 15, 2019. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Schedule of Computation of Diluted Loss

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2020 is as follows:

Convertible notes	3,924,075
Options to purchase common stock	4,747,916
Unvested restricted stock awards	1,392,922
Warrants to purchase common stock	4,564,733
	14,629,646

Schedule of Disaggregation of Revenue

The following table illustrates our revenue by type related to the three months ended June 30, 2020 and 2019:

Three Months Ended June 30,	2020		2019
Revenue
Wholesale	$	1,595	$	-
Retail		5,072		-
Rental		11		361
Other		18		260
Total revenue		6,696		621
Discounts and returns		1,498		-
Net Revenue	$	5,198	$	621

The following table illustrates our revenue by type related to the nine months ended June 30, 2020 and 2019:

Nine Months Ended June 30,	2020		2019
Revenue
Wholesale	$	2,903	$	-
Retail		7,366		-
Rental		26		1,053
Other		20		261
Total revenue		10,315		1,314
Discounts and returns		1,498		-
Net Revenue	$	8,817	$	1,314

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Property, Plant & Equipment (Tables)

9 Months Ended

Jun. 30, 2020

Property, Plant and Equipment [Abstract]

Schedule of Property, Plant and Equipment

Property and equipment consist of the following (in thousands):

	June 30,			September 30,
	2020			2019
Land	$	1,451		$	1,451
Automobiles		61			61
Signage		19			19
Furniture and equipment		2,291			2,125
Leasehold improvements		3,306			3,197
Buildings and property improvements		12,628			9,719
Computer software		59			59
		19,815			16,631
Accumulated depreciation		(3,195	)		(1,925	)
Property and equipment, net	$	16,620		$	14,706

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Inventory (Tables)

9 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventory consists of the following (in thousands):

	June 30,		September 30,
	2020		2019
Raw materials	$	844	$	169
Work-in-progress		129		42
Finished goods		380		400
Total Inventory	$	1,353	$	611

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Asset Acquisitions (Tables)

9 Months Ended

Jun. 30, 2020

Noncontrolling Interest [Abstract]

Schedule of Pro Forma Revenue and Operating Loss

The table below represents unaudited pro forma revenue and operating loss as if the acquisition of 7LV had occurred in September 2019.

	Nine months ended June 30, 2020
Revenues	$	5,672
Operating loss	$	(25,292	)

Summary of Business Combination Asset Acquired and Liabilities Assumed

Consideration Paid (in thousands)
Estimated fair value of common stock issued	$	10,022
Estimated fair value of warrants issued		653
Estimated fair value of debt issued		3,410
Contingent consideration		1,084
Total consideration paid	$	15,169
Assets acquired: (in thousands)
Cash and cash equivalents	$	81
Accounts Receivable, net		-
Inventory		131
Prepaid expenses and other current assets		12
Goodwill		10,543
Intangible assets		4,474
Total assets acquired	$	15,241
Liabilities assumed: (in thousands)
Accrued expenses and other current liabilities		72
Total liabilities assumed	$	72
Net assets acquired (in thousands)	$	15,169

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Non-Controlling Interests (Tables)

9 Months Ended

Jun. 30, 2020

Noncontrolling Interest [Abstract]

Schedule of Non-Controlling Interests in Consolidated Entities

Non-controlling interests in consolidated entities are as follows (in thousands):

	As of June 30, 2020
	NCI Equity Share		Net Loss Attributable to NCI			NCI in Consolidated Entities		Non-Controlling Ownership %
NVD RE Corp.	$	916	$	(43	)	$	873		50.0	%
Western Coast Ventures, Inc.	$	1,287		(192	)		1,095		49.0	%
YMY Ventures, Inc.	$	447		(231	)		216		50.0	%
	$	2,650	$	(466	)	$	2,184

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Intangible Assets, Net (Tables)

9 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

Intangible assets as of June 30, 2020 (in thousands):

	Estimated Useful Life		Cannabis Licenses		Tradename		Customer Relationship		Non-compete		Accumulated Amortization			Net Carrying Amount
Balance as September 30, 2019			$	5,814	$	147	$	135	$	220	$	-		$	6,316
YMY Ventures (1)		15		-		-		-		-		(38	)		(38	)
Western Coast Ventures, Inc. (1)		15		-		-		-		-		(122	)		(122	)
Yerba Buena		3-15 years		-		-		-		-		(172	)		(172	)
Foot Hills		15		4,474								(98	)		4,376
Other		5		-		-		-		-		-			-
Balance as June 30, 2020			$	10,288	$	147	$	135	$	220	$	(430	)	$	10,360

(1) These represent provisional licenses that the Company acquired during the fiscal years ended September 30, 2019 and 2018. Once these licenses are approved by their respective regulatory bodies, the Company will amortize these cannabis licenses over a 15-year estimated useful life. Amortization expense for the three and nine months ended June 30, 2020 was $172 and $430, respectively.

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Accounts payable and Accrued Expenses (Tables)

9 Months Ended

Jun. 30, 2020

Payables and Accruals [Abstract]

Schedule of Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following (in thousands):

	June 30, 2020		September 30, 2019
Accounts payable	$	1,663	$	707
Accrued credit cards		38		31
Accrued interest		133		106
Other		393		238
Total Accounts Payable and Accrued Expenses	$	2,226	$	1,082

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Notes Payable and Advances (Tables)

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Short-term Notes and Advances

The following table summarizes the Company’s notes, mortgages, and advances as of June 30, 2020 and September 30, 2019 (in thousands):

	June 30,		September 30,
	2020		2019
Equipment financing	$	30	$	33
Insurance financing		174		160
Mortgages payable		1,259		2,191
Promissory note		1,489		1,000
	$	2,952	$	3,384
Acquisition notes payable		679		708
Total notes payable and advances	$	3,631	$	4,092
Long-term mortgages		3,085

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Convertible Debt (Tables)

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Assumptions Value Warrant Granted

The significant assumptions used in the valuation are as follows:

Fair value of underlying common shares	$	1.78 to 2.10
Exercise price (converted to USD)	$	1.125
Dividend yield		-
Historical volatility		115	%
Risk free interest rate		1.40 to 1.90	%

Schedule of Embedded Derivative Liability

The table below shows the warrant liability and embedded derivative liability recorded in connection with the Canaccord convertible notes and the subsequent fair value measurement during the nine months ended June 30, 2020 in USD, (in thousands):

	Warrant Liability			Derivative Liability
Balance at September 30, 2019	$	42		$	158
Change in fair value		(7	)		(21	)
Balance at December 31, 2019		35			137
Change in fair value		(15	)		(121	)
Balance at March 31, 2020		20			16
Change in fair value		50			570
Balance at June 30, 2020	$	70		$	586

Schedule of Convertible Notes

The table below shows the net amount of convertible notes as of June 30, 2020 in USD (in thousands):

	June 30, 2020
Principal value of 8%, convertible at $0.84 at June 30, 2020, due December 27, 2020
including penalty provision of $155,239	$	2,901
Principal value of 10%, convertible at $1.22 at June 30, 2020, due May 30, 2021 (see note 5)		3,410
Debt discount		(557	)
Cumulative foreign currency impact		242
Carrying value of convertible notes	$	5,996

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Fair Value Measurements (Tables)

9 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Schedule of Liabilities Measured at Fair Value on a Recurring Basis

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2020 (in thousands):

	Fair value measured at June 30, 2020
				Quoted	Significant
				prices in active markets	other observable inputs		Significant unobservable inputs
	Fair value			(Level 1)	(Level 2)		(Level 3)
Warrant liability	$	448	$	-	$	-	$448
Embedded derivative liability		586		-		-	586
Total fair value	$	1,034	$	-	$	-	$1,034

Schedule of Level 3 Liabilities Measured at Fair Value

Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).

				Embedded
	Warrant Liability			Derivative Liability			Total
Balance – September 30, 2019	$	283		$	158		$	441
Warrants granted for stock-based compensation		-			-			-
Change in fair value		(38	)		(21	)		(59	)
Balance - December 31, 2019		245			137			382
Warrants issued pursuant to acquisition (see Note 5)		823						823
Warrants granted for stock-based compensation		105			-			105
Change in fair value		254			(121	)		133
Other		(10	)		-			(10	)
Balance - March 31, 2020		1,417			16			1,433
Change in fair value		(969	)		570			(399	)
Balance - June 30, 2020	$	448		$	586		$	1,034

Summary of Weighted Average Significant Unobservable Inputs

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of June 30, 2020 is as follows:

	Warrant Liability
	As of June 30, 2020
Strike price	$	0.45
Contractual term (years)		1 to 3
Volatility (annual)		115	%
Risk-free rate		.29	%
Dividend yield (per share)		0	%

	Embedded Derivative Liability
	As of June 30, 2020			As of September, 2019
Strike price	$	1.36		$	0.80
Contractual term (years)		1.5			1.2
Volatility (annual)		122	%		85	%
Risk-free rate		1.36	%		1.68	%
Dividend yield (per share)		0	%		11.12	%

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Stock Based Compensation (Tables)

9 Months Ended

Jun. 30, 2020

Compensation Related Costs [Abstract]

Schedule of Fair Value of Options Granted

The fair value of options granted during the nine months ended June 30, 2020 were estimated using the following weighted-average assumptions:

Options:

	For the Nine Months Ended June 30, 2020
Exercise price		$0.80 - $4.00
Expected term (years)		.5 - 4.0
Expected stock price volatility		108.8% - 188.6	%
Risk-free rate of interest		1.6	%
Expected dividend rate		0	%

Summary of Stock Option Activity

A summary of option activity under the Company’s stock option plan for nine months ended June 30, 2020 is presented below:

	Number of Shares		Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of September 30, 2019		3,210,416	$	2.45	$	-		2.1
Granted		1,262,500	$	1.19	$	-		2.3
Outstanding as of December 31, 2019		4,472,916	$	2.09	$	-		2.0
Granted		275,000
Outstanding as of March 31, 2020		4,747,916	$	2.03	$	-		1.66
Granted		-		-		-		-
Outstanding as of June 30, 2020		4,747,916		2.03		-		1.41
Options vested and exercisable		4,435,416	$	2.10	$	-		1.40

Schedule of Stock-based Compensation Expenses

Stock-based compensation expense for the three and nine months ended June 30, 2020 and 2019 was comprised of the following (in thousands):

	Three months ended June 30,
	2020		2019
Stock grants	$	6	$	3,995
Stock options		-		135
Warrants		-		-
Total stock-based compensation	$	6	$	4,130
		Nine months ended June 30,
		2020		2019
Stock grants	$	1,193	$	5,991
Stock options		615		478
Warrants		105		697
Total stock-based compensation	$	1,913	$	7,166

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Incorporation and Operations and Going Concern (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	[1]	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash and cash equivalents	$ 1,913			$ 3,339
Working capital	(8,500)
Stockholder's equity	28,668	$ 27,873	$ 21,178	23,594		$ 33,987	$ 29,287	$ 15,739	$ 8,287
Accumulated deficit	$ (48,952)			$ (40,384)

[1] Derived from audited information

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Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended	12 Months Ended
	Dec. 31, 2018	Jun. 30, 2020	Sep. 30, 2019
Stock issued during the period		12,500,000
Stock issued during the period, value	$ 2,575
Accounting Standards Update 2016-02 [Member]
Operating lease liabilities		$ 1,300
Right of use of asset		$ 1,300
Multi-Party Agreement [Member]
Stock issued during the period, value			$ 12,500

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Summary of Significant Accounting Policies - Schedule of Computation of Diluted Loss (Details)	9 Months Ended
	Jun. 30, 2020 shares
Antidilutive Securities excluded from computation of earnings per share, amount	14,629,646
Convertible Notes [Member]
Antidilutive Securities excluded from computation of earnings per share, amount	3,924,075
Options to Purchase Common Stock [Member]
Antidilutive Securities excluded from computation of earnings per share, amount	4,747,916
Unvested Restricted Stock Awards [Member]
Antidilutive Securities excluded from computation of earnings per share, amount	1,392,922
Warrants to Purchase Common Stock [Member]
Antidilutive Securities excluded from computation of earnings per share, amount	4,564,733

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Summary of Significant Accounting Policies - Schedule of Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Total Revenue	$ 6,696	$ 621	$ 10,315	$ 1,314
Discounts and returns	1,498		1,498
Net revenue	5,198	621	8,817	1,314
Wholesale [Member]
Total Revenue	1,595		2,903
Retail [Member]
Total Revenue	5,072		7,366
Rental [Member]
Total Revenue	11	361	26	1,053
Other [Member]
Total Revenue	$ 18	$ 260	$ 20	$ 261

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Property, Plant & Equipment (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Property, Plant and Equipment [Abstract]
Depreciation and amortization expense	$ 500	$ 200	$ 1,300	$ 700

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Property, Plant & Equipment - Schedule of Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Sep. 30, 2019
Property and equipment, gross	$ 19,815	$ 16,631
Accumulated depreciation	(3,195)	(1,925)
Property and equipment, net	16,620	14,706	[1]
Land [Member]
Property and equipment, gross	1,451	1,451
Automobiles [Member]
Property and equipment, gross	61	61
Signage [Member]
Property and equipment, gross	19	19
Furniture and Equipment [Member]
Property and equipment, gross	2,291	2,125
Leasehold Improvements [Member]
Property and equipment, gross	3,306	3,197
Buildings and Property Improvements [Member]
Property and equipment, gross	12,628	9,719
Computer Software [Member]
Property and equipment, gross	$ 59	$ 59

[1] Derived from audited information

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Inventory (Details Narrative) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Inventory reserve
Owned by One Subsidiaries [Member]
Equity method investment, ownership percentage	50.00%

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Inventory - Schedule of Inventory (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Sep. 30, 2019
Inventory Disclosure [Abstract]
Raw materials	$ 844	$ 169
Work-in-progress	129	42
Finished goods	380	400
Total Inventory	$ 1,353	$ 611	[1]

[1] Derived from audited information

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Asset Acquisitions (Details Narrative)		1 Months Ended	9 Months Ended
	Nov. 01, 2019 USD ($) shares	Jun. 30, 2020 USD ($) $ / shares shares	Jun. 30, 2020 USD ($) $ / shares shares	Jun. 30, 2019 USD ($)	Jun. 30, 2020 CAD ($) shares	May 31, 2020	Apr. 30, 2020 $ / shares
Purchase of property			$ 433,000	$ 905,000
Debt instrument, interest rate		8.00%	8.00%		8.00%
Debt instrument, conversion price | $ / shares		$ 0.84	$ 0.84				$ 1.90
Warrants exercise price | $ / shares							$ 1.50
Share Exchange Agreement [Member]
Debt instrument, interest rate						12.50%
Purchase price			$ 1,220,000
Achievement of revenue			5,000,000
Contingent liability		$ 1,084	$ 1,084
Seven Leaf Ventures Corp [Member]
Number of shares issued for purchase price | shares		11,999,008
Issuance of common stock convertible debentures, shares | shares		682,000
Debt instrument, interest rate		10.00%	10.00%		10.00%
Business acquisition, planned restructuring activities, description		The Company assumed the obligations of 7LV with respect to the common share purchase warrants of 7LV outstanding on the closing of the acquisition, subject to appropriate adjustments to reflect the exchange ratio. Accordingly, the Company has assumed 1,022,915 common share purchase warrants (the "Warrants"), exercisable into shares at an exercise price of C$2.08 per share at any time prior to May 3, 2021, 299,975 Warrants, exercisable into shares at an exercise price of C$4.17 per share at any time prior to December 30, 2020 and 999,923 Warrants, exercisable into shares at an exercise price of C$0.50 at any time prior to October 10, 2020. Following the completion of the acquisition, 7LV is now a wholly-owned subsidiary of the Company. Certain shareholders of 7LV, who collectively held approximately 74.5% of the 7LV Shares outstanding at the closing of the acquisition, have agreed to a contractual lock-up pursuant to which such shareholders will not transfer 25% of the Company's shares received as part of the acquisition until approximately 90 days following the acquisition by 7LV of the Sacramento California Dispensary.
Seven Leaf Ventures Corp [Member] | Unsecured Convertible Debentures [Member]
Debt instrument, interest rate		10.00%	10.00%		10.00%
Unsecured convertible debentures		$ 3,410	$ 3,410
Debt instrument, conversion price | $ / shares		$ 1.67	$ 1.67
Number of warrants to purchase shares | shares		1,022,915	1,022,915		1,022,915
Seven Leaf Ventures Corp [Member] | Unsecured Convertible Debentures [Member] | CAD [Member]
Unsecured convertible debentures					$ 4,571
Warrants exercise price | $ / shares		$ 2.08	$ 2.08
Seven Leaf Ventures Corp [Member] | Unsecured Convertible Debentures [Member]
Number of warrants to purchase shares | shares		299,975	299,975		299,975
Warrants exercise price | $ / shares		$ 4.17	$ 4.17
Seven Leaf Ventures Corp [Member] | Unsecured Convertible Debentures [Member]
Number of warrants to purchase shares | shares		999,923	999,923		999,923
Warrants exercise price | $ / shares		$ 0.50	$ 0.50
Seven Leaf Ventures Corp [Member] | Seven Leaf Debenture Holders [Member]
Debt instrument face amount		$ 3,410	$ 3,410
Empire Holdings LLC [Member]
Equity method investment, ownership percentage	100.00%
Purchase of property	$ 500,000
Paid in kind lien amount	$ 105,732
Number of shares issued for purchase price | shares	394,270

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Asset Acquisitions - Schedule of Pro Forma Revenue and Operating Loss (Details)	9 Months Ended
	Jun. 30, 2020 USD ($)
Equity Method Investments and Joint Ventures [Abstract]
Revenues	$ 5,672
Operating loss	$ (25,292)

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Asset Acquisitions - Summary of Business Combination Asset Acquired and Liabilities Assumed (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019	[1]
Goodwill	$ 11,613,000	$ 1,070,000
Seven Leaf Ventures Corp [Member]
Estimated fair value of common stock issued	10,022
Estimated fair value of warrants issued	653
Estimated fair value of debt issued	3,410
Contingent consideration	1,084
Total consideration paid	15,169
Cash and cash equivalents	81
Accounts Receivable, net
Inventory	131
Prepaid expenses and other current assets	12
Goodwill	10,543
Intangible assets	4,474
Total assets acquired	15,241
Accrued expenses and other current liabilities	72
Total liabilities assumed	72
Net assets acquired (in thousands)	$ 15,169

[1] Derived from audited information

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Notes Receivable (Details Narrative) - USD ($)	Jun. 30, 2020	Jan. 06, 2020	Jan. 04, 2020
Debt instrument, interest rate	8.00%
Community Growth Partners Holdings, Inc., [Member]
Promissory note issued, value			$ 355,000
Loans receivable	$ 600,000	$ 2,000,000
Debt instrument, interest rate		10.00%
Community Growth Partners Holdings, Inc., [Member] | revolving credit promissory note [Member]
Loans receivable		$ 2,500,000

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Non-Controlling Interests - Schedule of Non-Controlling Interests in Consolidated Entities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2019	[1]
NCI Equity Share			2,650
Net Loss Attributable to NCI	$ (121)		$ (466)
NCI in Consolidated Entities	2,184		$ 2,184		$ 2,724
NVD RE Corp. [Member]
NCI Equity Share			916
Net Loss Attributable to NCI			$ (43)
NCI in Consolidated Entities	$ 873		$ 873
Non-Controlling Ownership, percentage	50.00%		50.00%
Western Coast Ventures, Inc. [Member]
NCI Equity Share			1,287
Net Loss Attributable to NCI			$ (192)
NCI in Consolidated Entities	$ 1,095		$ 1,095
Non-Controlling Ownership, percentage	49.00%		49.00%
YMY Ventures, Inc. [Member]
NCI Equity Share			447
Net Loss Attributable to NCI			$ (231)
NCI in Consolidated Entities	$ 216		$ 216
Non-Controlling Ownership, percentage	50.00%		50.00%

[1] Derived from audited information

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Intangible Assets, Net - Schedule of Intangible Assets (Details) $ in Thousands	9 Months Ended
	Jun. 30, 2020 USD ($)
Balance, beginning	$ 6,316
Accumulated Amortization	430
Balance, ending	10,360
YMY Ventures LLC [Member]
Accumulated Amortization	(38)	[1]
Balance, ending	$ (38)	[1]
Estimated Useful Life	15 years	[1]
Western Coast Ventures, Inc. (WCV) [Member]
Accumulated Amortization	$ (122)	[1]
Balance, ending	$ (122)	[1]
Estimated Useful Life	15 years	[1]
Yerba Buena, LLC [Member]
Accumulated Amortization	$ (172)
Balance, ending	$ (172)
Yerba Buena, LLC [Member] | Minimum [Member]
Estimated Useful Life	3 years
Yerba Buena, LLC [Member] | Maximum [Member]
Estimated Useful Life	15 years
Foot Hills [Member]
Accumulated Amortization	$ (98)
Balance, ending	$ 4,376
Estimated Useful Life	15 years
Other [Member]
Accumulated Amortization
Balance, ending
Estimated Useful Life	5 years
Cannabis Licenses [Member]
Balance, beginning	$ 5,814
Balance, ending	10,288
Cannabis Licenses [Member] | YMY Ventures LLC [Member]
Balance, beginning		[1]
Balance, ending		[1]
Cannabis Licenses [Member] | Western Coast Ventures, Inc. (WCV) [Member]
Balance, beginning		[1]
Balance, ending		[1]
Estimated Useful Life
Cannabis Licenses [Member] | Yerba Buena, LLC [Member]
Balance, beginning
Balance, ending
Cannabis Licenses [Member] | Foot Hills [Member]
Balance, beginning	4,474
Balance, ending
Cannabis Licenses [Member] | Other [Member]
Balance, beginning
Balance, ending
Trade Name [Member]
Balance, beginning	147
Balance, ending	147
Trade Name [Member] | YMY Ventures LLC [Member]
Balance, beginning		[1]
Balance, ending		[1]
Trade Name [Member] | Western Coast Ventures, Inc. (WCV) [Member]
Balance, beginning		[1]
Balance, ending		[1]
Estimated Useful Life
Trade Name [Member] | Yerba Buena, LLC [Member]
Balance, beginning
Balance, ending
Trade Name [Member] | Foot Hills [Member]
Balance, beginning
Balance, ending
Trade Name [Member] | Other [Member]
Balance, beginning
Balance, ending
Customer Relationship [Member]
Balance, beginning	135
Balance, ending	135
Customer Relationship [Member] | YMY Ventures LLC [Member]
Balance, beginning		[1]
Balance, ending		[1]
Customer Relationship [Member] | Western Coast Ventures, Inc. (WCV) [Member]
Balance, beginning		[1]
Balance, ending		[1]
Estimated Useful Life
Customer Relationship [Member] | Yerba Buena, LLC [Member]
Balance, beginning
Balance, ending
Customer Relationship [Member] | Foot Hills [Member]
Balance, beginning
Balance, ending
Customer Relationship [Member] | Other [Member]
Balance, beginning
Balance, ending
Non-Compete [Member]
Balance, beginning	220
Balance, ending	220
Non-Compete [Member] | YMY Ventures LLC [Member]
Balance, beginning		[1]
Balance, ending		[1]
Non-Compete [Member] | Western Coast Ventures, Inc. (WCV) [Member]
Balance, beginning		[1]
Balance, ending		[1]
Estimated Useful Life
Non-Compete [Member] | Yerba Buena, LLC [Member]
Balance, beginning
Balance, ending
Non-Compete [Member] | Foot Hills [Member]
Balance, beginning
Balance, ending
Non-Compete [Member] | Other [Member]
Balance, beginning
Balance, ending

[1] These represent provisional licenses that the Company acquired during the fiscal years ended September 30, 2019 and 2018. Once these licenses are approved by their respective regulatory bodies, the Company will amortize these cannabis licenses over a 15-year estimated useful life. Amortization expense for the three and nine months ended June 30, 2020 was $172 and $430, respectively.

XML

Intangible Assets, Net - Schedule of Intangible Assets (Details) (Parenthetical) - Cannabis Licenses [Member] - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Amortization estimated useful life, description		Once these licenses are approved by their respective regulatory bodies, the Company will amortize these cannabis licenses over a 15-year estimated useful life.
Amortization estimated useful life		15 years
Amortization expense	$ 172	$ 430

XML

Related Party (Details Narrative) $ in Thousands	Jun. 30, 2020 USD ($)
Seven Leaf Ventures Corp. [Member]
Due from related parties	$ 490

XML

Accounts Payable and Accrued Expenses - Schedule of Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Sep. 30, 2019
Payables and Accruals [Abstract]
Accounts payable	$ 1,663	$ 707
Accrued credit cards	38	31
Accrued interest	133	106
Other	393	238
Total Accounts Payable and Accrued Expenses	$ 2,225	$ 1,082	[1]

[1] Derived from audited information

XML

Notes Payable and Advances (Details Narrative) - USD ($)																1 Months Ended		9 Months Ended
	Mar. 17, 2020	Feb. 07, 2020	Dec. 05, 2019	Jul. 30, 2019	Jun. 24, 2019	Jun. 08, 2019	May 24, 2019	Jul. 31, 2018	May 29, 2018	Apr. 30, 2018	Apr. 29, 2018	Apr. 04, 2018	Feb. 28, 2018	Jan. 16, 2018	Nov. 30, 2017	Jan. 31, 2020	Apr. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Apr. 30, 2020	Sep. 30, 2019		Sep. 30, 2018
Debt instrument, interest rate																		8.00%
Debt maturity date																		Dec. 27, 2020
Acquisition of purchase price																		$ 433,000	$ 905,000
Mortgage payable																		1,259,000			$ 2,191,000
Due to related party																		666,000				[1]
Short-term liabilities																		2,951,000			3,384,000	[1]
Warrants exercise price																				$ 1.50
Acquisition of Yerba Buena [Member]
Debt instrument face amount																	$ 400,000
Debt monthly payments																	$ 28,093
Debt instrument, interest rate																	8.00%
Debt maturity period description																	The note was issued on April 8, 2019 and is due on April 8, 2021.
Debt maturity date																	Apr. 08, 2021
Short-term liabilities																	$ 371,907
Willamette Property [Member]
Mortgage payable													$ 550,000					550,000
Mortgage payable, interest rate													15.00%
Mortgage payable final due date													Jun. 01, 2020
Value of mortgage paid																		$ 28,000
Description of collateral																		The note has been cross guaranteed by the CEO and Director of the Company.
Property With Additional Personal Guaranty of CEO [Member]
Mortgage payable	$ 700,000															$ 400,000
Mortgage payable, interest rate	15.00%															15.00%
Mortgage payable final due date	Jun. 30, 2022															Jan. 30, 2022
Value of mortgage paid	$ 42,000															$ 24,000
Powell Property [Member]
Mortgage payable												$ 304,000						$ 304,000
Mortgage payable, interest rate												15.00%
Mortgage payable final due date												Apr. 01, 2020
Value of mortgage paid																		$ 19,000
Description of collateral																		The note has been cross guaranteed by the CEO and Director of the Company.
Shares issued escrow amount												$ 75,000
East Coast Packers LLC [Member]
Debt instrument face amount																		$ 1,000,000
Equity method investment																		236
Cash																		232
NVD RE Corp. [Member]
Notes payable																					300,000
Debt instrument, interest rate										37.50%
Mortgage payable																		300,000
Due to related party										$ 1,275,000
Purchase price										600,000
Payment of tenant improvement										$ 675,000
YMY Ventures LLC [Member]
Notes payable																					$ 300,000
YMY Ventures LLC [Member] | Acquisition Notes Payable [Member]
Acquire membership interest rate																							50.00%
2017 Tractor [Member]
Debt instrument face amount					$ 18,000
Debt monthly payments					$ 482
Notes payable																		11,056
Notes Payable [Member]
Notes payable																		$ 0
Debt instrument, interest rate																		0.00%
Notes Payable One [Member]
Notes payable																		$ 4,425
Debt instrument, interest rate																		0.00%
Promissory Note [Member]
Debt instrument face amount															$ 21,749
Notes payable																		$ 14,950
Debt instrument, interest rate															18.00%
Debt servicing fee percentage															10.00%
Debt maturity period description															Matures 24 months after issuance
Promissory Note [Member] | East Coast Packers LLC [Member]
Debt instrument face amount								$ 1,500,000
Ownership interest								25.00%
Payments to acquire business interest								$ 500,000
Note issued for interest acquisition								1,000,000
Payments to license								$ 500
Mortgage Payable [Member]
Mortgage payable																		$ 1,585,000
Mortgage payable, interest rate																		11.55%
Value of mortgage paid																		$ 120,000
Mortgage Payable [Member]
Mortgage payable																		$ 400,000
Mortgage payable, interest rate																		11.55%
Value of mortgage paid																		$ 38,000
Two Promissory Notes [Member] | Mature in July 2020 [Member]
Debt instrument face amount																$ 500,000
Debt instrument, interest rate																12.00%
Debt maturity period description																The notes mature in October 2020 and has an annual rate of interest of 12%.
Number of warrants issued to purchase common stock																100,000
Warrants term																5 years
Warrants exercise price																$ 0.85
Two Promissory Notes [Member] | Mature in October 2020 [Member]
Debt instrument face amount																$ 500,000
Debt instrument, interest rate																12.00%
Debt maturity period description																The notes mature in October 2020 and has an annual rate of interest of 12%.
Number of warrants issued to purchase common stock																100,000
Warrants term																5 years
Warrants exercise price																$ 0.85
24-Month Premium Finance Agreement [Member] | Notes Payable [Member]
Debt instrument face amount									$ 27,844
Debt monthly payments									$ 1,160
36-Month Premium Finance Agreement [Member] | Notes Payable [Member]
Debt instrument face amount											$ 15,710
Debt monthly payments											$ 442
10-Month Premium Finance Agreement [Member] | Notes Payable [Member]
Debt instrument face amount				$ 63,101
Debt monthly payments				$ 4,582
Notes payable																		0
Debt instrument, interest rate				7.63%
10-Month Premium Finance Agreement [Member] | Notes Payable One [Member]
Debt instrument face amount				$ 78,900
Debt monthly payments				$ 5,756
Notes payable																		0
Debt instrument, interest rate				7.25%
10-Month Premium Finance Agreement [Member] | Notes Payable Two [Member]
Debt instrument face amount						$ 5,975
Debt monthly payments						$ 513
Notes payable																		0
Debt instrument, interest rate						5.75%
9-Month Premium Finance Agreement [Member] | Notes Payable [Member]
Debt instrument face amount							$ 11,440
Debt monthly payments							$ 1,322
Notes payable																		0
Debt instrument, interest rate							8.70%
9-Month Premium Finance Agreement [Member] | Notes Payable One [Member]
Debt monthly payments		$ 60,255	$ 685
9-Month Premium Finance Agreement [Member] | Notes Payable One [Member] | Nine Monthly Payments [Member]
Debt monthly payments		22,718
12-Month Premium Finance Agreement [Member] | Notes Payable One [Member]
Debt instrument face amount		$ 300,150	$ 9,490
Notes payable																		1,369
Debt instrument, interest rate		7.46%	8.70%
12-Month Premium Finance Agreement [Member] | Notes Payable Two [Member]
Notes payable																		$ 159,024
Paycheck Protection Program [Member]
Debt instrument, interest rate																		1.00%
Proceeds from loans																		$ 266,820
Debt maturity date																		May 01, 2022
Paycheck Protection Program [Member]
Debt instrument, interest rate																		1.00%
Proceeds from loans																		$ 245,400
Debt maturity date																		Jun. 03, 2022
Paycheck Protection Program [Member]
Debt instrument, interest rate																		1.00%
Proceeds from loans																		$ 62,500
Debt maturity date																		Jun. 25, 2022
Contract for Sale [Member]
Notes payable																		$ 958,500
Debt maturity date														Jan. 31, 2020
Promissory note amount														$ 1,200,000
Contract for Sale [Member] | Mulino Property [Member]
Purchase price of premises														1,700,000
Rental credit														135,000
Monthly payments														15,000
Amount granted for improvement of property														9,500
Acquisition of purchase price														370,637
Contract for Sale [Member] | July 2018 [Member]
Debt monthly payments														$ 13,500
Monthly installments interest rate														2.00%

[1] Derived from audited information

XML

Notes Payable and Advances - Schedule of Short-term Notes and Advances (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Sep. 30, 2019
Debt Disclosure [Abstract]
Equipment financing	$ 30	$ 33
Insurance financing	174	160
Mortgages and liens payable	1,259	2,191
Promissory note	1,489	1,000
Short-term notes and advances	2,951	3,384	[1]
Acquisition notes payable	679	708	[1]
Total notes payable and advances	3,631	$ 4,092
Long-term mortgages	$ 3,085

[1] Derived from audited information

XML

Convertible Debt (Details Narrative)				1 Months Ended				3 Months Ended	9 Months Ended		12 Months Ended
	Jun. 14, 2019 USD ($) $ / shares shares	Jan. 31, 2019 USD ($) $ / shares shares	Dec. 27, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jan. 31, 2019 CAD ($) shares	Dec. 31, 2018 CAD ($) shares	Oct. 31, 2018 USD ($) $ / shares shares	Dec. 31, 2018 USD ($)	Jun. 30, 2020 USD ($) $ / shares shares	Jun. 30, 2020 CAD ($) shares	Sep. 30, 2018 USD ($) $ / shares shares	Apr. 30, 2020 $ / shares	Mar. 31, 2019 $ / shares shares	Nov. 02, 2018 $ / shares	Jun. 30, 2018 USD ($) $ / shares	May 31, 2018 USD ($) $ / shares
Debt maturity date									Dec. 27, 2020	Dec. 27, 2020
Debt instrument, interest rate									8.00%
Conversion price | $ / shares									$ 0.84			$ 1.90
Inducement cost to convert convertible notes								$ 824,000
Warrant exercise price | $ / shares												1.50
Share price per share | $ / shares												1.15
Common Stock [Member]
Inducement cost to convert convertible notes
Canaccord Genuity Inc., [Member]
Debt instrument principal and interest percentage									105.00%	105.00%
Canaccord Genuity Inc., [Member] | Common Stock [Member]
Finance fee									$ 50,000
Private Offering [Member] | Canaccord Genuity Inc., [Member] | CD Special Warrant [Member]
Number of warrants to purchase shares | shares	962	3,121											3,121
Issuance of common stock convertible debentures	$ 700,000	$ 2,300,000	$ 10,000	$ 2,300,000
Private Offering [Member] | Canaccord Genuity Inc., [Member] | Broker CD Special Warrant [Member]
Issuance of common stock convertible debentures, shares | shares	5,600				52	52
Senior Unsecured Convertible Notes [Member]
Debt instrument, interest rate															8.00%	8.00%
Conversion price | $ / shares															$ 2.50	$ 2.50
Convertible notes, principal amount															$ 1,500,000	$ 1,500,000
Inducement cost associated with the conversion of the convertible promissory notes															$ 900,000	$ 900,000
Debt converted into shares | shares							833,333
Minimum [Member] | Senior Unsecured Convertible Notes [Member]
Conversion price | $ / shares														$ 1.80
Agents [Member] | Canaccord Genuity Inc., [Member]
Cash commission percentage									7.00%	7.00%
Agents [Member] | Canaccord Genuity Inc., [Member] | Broker CD Special Warrant [Member]
Cash commission percentage									7.00%	7.00%
Indenture Trustee [Member] | Canaccord Genuity Inc., [Member]
Debt instrument principal and interest percentage									25.00%	25.00%
CAD [Member]
Share price per share | $ / shares												$ 1.87
CAD [Member] | Canaccord Genuity Inc., [Member]
Conversion price | $ / shares									$ 3.00
Issuance of common stock convertible debentures									$ 1,000
Share price per share | $ / shares									$ 3.00
Debt converted into shares | shares									333.33	333.33
Fair value of options grant									$ 424,000
CAD [Member] | Canaccord Genuity Inc., [Member] | Common Stock [Member]
Finance fee									$ 50,000
CAD [Member] | Canaccord Genuity Inc., [Member] | Broker Warrant [Member]
Warrant exercise price | $ / shares									$ 1,000
Commission fee									$ 157,290
Commission and finance fee plus additional expenses										$ 20,000
Legal fee									181,365
Offering fee and expenses									320,000
CAD [Member] | Private Offering [Member] | Canaccord Genuity Inc., [Member] | CD Special Warrant [Member]
Warrant exercise price | $ / shares	$ 1,000	$ 1,000											$ 1,000
Proceeds from private offerings			$ 10,000,000
Issuance of common stock convertible debentures	$ 1,000,000				$ 3,100,000	$ 3,100,000
8% Convertible Notes [Member] | Canaccord Genuity Inc., [Member]
Proceeds from private offerings									3,100,000
8% Convertible Notes [Member] | Six-Month Term [Member]
Convertible promissory notes											$ 500,000
Remaining balance of warrant liability for debentures									0
8% Convertible Notes [Member] | Six-Month Term [Member] | Accredited Investor [Member]
Convertible promissory notes											$ 975,000
Debt maturity date											Mar. 31, 2019
Debt instrument, interest rate											8.00%
Conversion price | $ / shares											$ 2.50
Issuance of common stock convertible debentures, shares | shares							541,668
Inducement cost to convert convertible notes							$ 368,000
Warrant term											3 years
Number of warrants to purchase shares | shares											97,500
Warrant exercise price | $ / shares											$ 2.50
8% Convertible Notes [Member] | Six-Month Term [Member] | Accredited Investor [Member] | Maximum [Member]
Conversion price | $ / shares							$ 2.50
8% Convertible Notes [Member] | Six-Month Term [Member] | Accredited Investor [Member] | Minimum [Member]
Conversion price | $ / shares							$ 1.80
8% Convertible Notes [Member] | CAD [Member] | Canaccord Genuity Inc., [Member]
Proceeds from private offerings									$ 4,100,000
8.0% Senior Unsecured Convertible Debenture [Member] | Canaccord Genuity Inc., [Member]
Debt instrument, interest rate									8.00%
Number of warrants to purchase shares | shares									167
Debt instrument description									Upon the exercise thereof and at no additional cost, 1.05 Convertible Debenture Units per CD Special Warrant (instead of 1.0 Convertible Debenture Unit per CD Special Warrant). Until the Receipt and Registration have been obtained, securities issued in connection with the Offering (including any underlying securities issued upon conversion or exercise thereof) will be subject to a 6-month hold period from the date of issue. Since the CD Special Warrants were exchanged for Convertible Debenture Units after 6 months as U.S. and Canadian registrations were not effective at that time, the holders received 1.05 Convertible Debenture Units per CD Special Warrant.	Upon the exercise thereof and at no additional cost, 1.05 Convertible Debenture Units per CD Special Warrant (instead of 1.0 Convertible Debenture Unit per CD Special Warrant). Until the Receipt and Registration have been obtained, securities issued in connection with the Offering (including any underlying securities issued upon conversion or exercise thereof) will be subject to a 6-month hold period from the date of issue. Since the CD Special Warrants were exchanged for Convertible Debenture Units after 6 months as U.S. and Canadian registrations were not effective at that time, the holders received 1.05 Convertible Debenture Units per CD Special Warrant.
Payment of brokered portion of offering									$ 1,900,000
8.0% Senior Unsecured Convertible Debenture [Member] | CAD [Member] | Canaccord Genuity Inc., [Member]
Warrant exercise price | $ / shares									$ 3.90
Convertible debenture									$ 1,000
Payment of brokered portion of offering									$ 2,500,000

XML

Convertible Debt - Schedule of Assumptions Value Warrant Granted (Details) - Warrants Granted [Member] - Convertible Debt [Member]	Jun. 30, 2020 Integer $ / shares
Exercise Price [Member]
Fair value of underlying common shares | $ / shares	$ 1.125
Dividend Yield [Member]
Fair value assumptions measurement input percentages
Historical Volatility [Member]
Fair value assumptions measurement input percentages	115
Minimum [Member]
Fair value of underlying common shares | $ / shares	$ 1.78
Minimum [Member] | Risk Free Interest Rate [Member]
Fair value assumptions measurement input percentages	1.40
Maximum [Member]
Fair value of underlying common shares | $ / shares	$ 2.10
Maximum [Member] | Risk Free Interest Rate [Member]
Fair value assumptions measurement input percentages	1.90

XML

Convertible Debt - Schedule of Embedded Derivative Liability (Details) - USD ($) $ in Thousands	3 Months Ended				9 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Change in fair value	$ (570)				$ (428)
Warrant Liability [Member]
Beginning balance	20	$ 35	$ 42		42
Change in fair value	50	(15)	(7)
Ending balance	70	20	35		70
Derivative Liability [Member]
Beginning balance	16	137	158		158
Change in fair value	570	(121)	(21)
Ending balance	$ 586	$ 16	$ 137		$ 586

XML

Convertible Debt - Schedule of Convertible Notes (Details) - Convertible Notes [Member] $ in Thousands	Jun. 30, 2020 USD ($)
Principal value of 8%, convertible at $0.84 at June 30, 2020, due December 27, 2020 including penalty provision of $155,239	$ 2,901
Principal value of 10%, convertible at $1.22 at June 30, 2020, due May 30, 2021 (see note 5)	3,410
Debt discount	(557)
Cumulative foreign currency impact	242
Carrying value of convertible notes	$ 5,996

XML

Convertible Debt - Schedule of Convertible Notes (Details) (Parenthetical) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Jun. 30, 2020	Apr. 30, 2020
Debt instrument, interest rate	8.00%
Conversion price	$ 0.84	$ 1.90
Debt instrument maturity date	Dec. 27, 2020
Penalty provision	$ 155,239
Convertible Notes [Member]
Debt instrument, interest rate	10.00%
Conversion price	$ 1.22
Debt instrument maturity date	May 30, 2021

XML

Fair Value Measurements (Details Narrative)	9 Months Ended
	Jun. 30, 2020
Fair Value Disclosures [Abstract]
Pricing model description	The Company used a lattice based trinomial model developed by Tsiveriotis, K. and Fernades in which the three lattices incorporate (1) the Company's underlying common stock price; (2) the value of the debt components of the convertible notes; and (3) the value of the equity component of the convertible notes. The main drivers of sensitivity for the model are volatility and the credit spread. The model used will vary by approximately 1.5% for a 4% change in volatility and will vary by less than 1% for each 1% change in credit spread.

XML

Fair Value Measurements - Schedule of Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Sep. 30, 2019	[1]
Warrant liability	$ 448	$ 283
Embedded derivative liability	586
Total fair value	1,034
Level 1 [Member]
Warrant liability
Embedded derivative liability
Total fair value
Level 2 [Member]
Warrant liability
Embedded derivative liability
Total fair value
Level 3 [Member]
Warrant liability	448
Embedded derivative liability	586
Total fair value	$ 1,034

[1] Derived from audited information

XML

Fair Value Measurements - Schedule of Level 3 Liabilities Measured at Fair Value (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019
Beginning balance	$ 1,433	$ 382	$ 441
Warrants granted for stock-based compensation		105
Warrants issued pursuant to acquisition (see Note 5)		823
Change in fair value	(399)	133	(59)
Other		(10)
Ending balance	1,034	1,433	382
Warrant Liability [Member]
Beginning balance	1,417	245	283
Warrants granted for stock-based compensation		105
Warrants issued pursuant to acquisition (see Note 5)		823
Change in fair value	(969)	254	(38)
Other		(10)
Ending balance	448	1,417	245
Embedded Derivative Liability [Member]
Beginning balance	16	137	158
Warrants granted for stock-based compensation
Warrants issued pursuant to acquisition (see Note 5)
Change in fair value	570	(121)	(21)
Other
Ending balance	$ 586	$ 16	$ 137

XML

Fair Value Measurements - Summary of Weighted Average Significant Unobservable Inputs (Details)	9 Months Ended	12 Months Ended
	Jun. 30, 2020 Integer $ / shares	Sep. 30, 2019 Integer $ / shares	Apr. 30, 2020 $ / shares
Warrant Liability Strike price | $ / shares			$ 1.50
Warrant Liability [Member]
Warrant Liability Strike price | $ / shares	$ 0.45
Warrant Liability [Member] | Volatility (Annual) [Member]
Warrant Liability Measurement input	115
Warrant Liability [Member] | Risk Free Interest Rate [Member]
Warrant Liability Measurement input	29
Warrant Liability [Member] | Dividend Yield [Member]
Warrant Liability Measurement input	0
Warrant Liability [Member] | Minimum [Member]
Warrant Liability Contractual term (years)	1 year
Warrant Liability [Member] | Maximum [Member]
Warrant Liability Contractual term (years)	3 years
Embedded Derivative Liability [Member]
Embedded Derivative Liability Strike price | $ / shares	$ 1.36	$ 0.80
Embedded Derivative Liability Contractual term (years)	1 year 6 months	1 year 2 months 12 days
Embedded Derivative Liability [Member] | Volatility (Annual) [Member]
Embedded Derivative Liability Measurement input	122	85
Embedded Derivative Liability [Member] | Risk Free Interest Rate [Member]
Embedded Derivative Liability Measurement input	1.36	1.68
Embedded Derivative Liability [Member] | Dividend Yield [Member]
Embedded Derivative Liability Measurement input	0	11.12

XML

Shareholders' Equity (Details Narrative)		3 Months Ended	6 Months Ended	9 Months Ended
	May 31, 2020 USD ($) shares	Jun. 30, 2020 USD ($) $ / shares shares	Jun. 30, 2020 USD ($) $ / shares shares	Jun. 30, 2020 USD ($) $ / shares shares	Jun. 30, 2020 CAD ($) shares	Apr. 30, 2020 $ / shares	Sep. 30, 2019 shares
Two series of preferred stock designated, shares issued | shares
Debt instrument, interest rate		8.00%	8.00%	8.00%	8.00%
Issuance of common stock in connection with share exchange agreement | $		$ 124,000
Number of common stock issued | shares			12,500,000
Shares issued price per share | $ / shares						$ 1.15
Debt conversion price | $ / shares		$ 0.84	$ 0.84	$ 0.84		1.90
Common stock issued for stock compensation | shares				18,750
Common stock issued for stock compensation, value | $				$ 6
CAD [Member]
Shares issued price per share | $ / shares						$ 1.87
Seven Leaf Ventures Corp [Member]
Debt instrument, interest rate		10.00%	10.00%	10.00%	10.00%
Number of common stock issued | shares				1,199,900
Purchase price | $				$ 15,169
Seven Leaf Ventures Corp [Member] | Unsecured Convertible Debentures [Member]
Debt instrument, interest rate		10.00%	10.00%	10.00%	10.00%
Number of common stock issued | shares				682,000
Unsecured debenture aggregate principal amount | $		$ 3,410	$ 3,410	$ 3,410
Debt conversion price | $ / shares		$ 1.67	$ 1.67	$ 1.67
Number of shares issued for convertible notes | shares				202,350
Value of shares issued for convertible notes | $				$ 121
Seven Leaf Ventures Corp [Member] | Unsecured Convertible Debentures [Member] | CAD [Member]
Unsecured debenture aggregate principal amount | $					$ 4,571
Share Exchange Agreement [Member]
Debt instrument, interest rate	12.50%
Issuance of common stock in connection with share exchange agreement | $	$ 386,035
Issuance of common stock in connection with share exchange agreement, shares | shares	196
Membership Interest Purchase Agreement [Member]
Number of common stock issued | shares				394,270
Purchase price | $				$ 500
Lien in real estate property | $		$ 106	$ 106	106
Building, carrying value | $		$ 500	$ 500	$ 500
Shares issued price per share | $ / shares		$ 1.00	$ 1.00	$ 1.00
Membership Interest Purchase Agreement [Member] | Eugene, Oregon [Member]
Number of common stock issued | shares				394,270
Consulting Agreement [Member]
Shares issued price per share | $ / shares		0.89	0.89	$ 0.89
Common stock issued for stock compensation | shares				5,000
Common stock issued for stock compensation, value | $				$ 4
Employment Agreement [Member]
Common stock issued for stock compensation | shares				100,000
Common stock issued for stock compensation, value | $				$ 498
Consulting Agreements [Member]
Shares issued price per share | $ / shares		$ 0.88	$ 0.88	$ 0.88
Common stock issued for stock compensation | shares				970,416
Common stock issued for stock compensation, value | $				$ 850
Number of shares cancelled | shares				700,000
Employment Agreements [Member]
Common stock issued for stock compensation | shares				303,756
Common stock issued for stock compensation, value | $				$ 47

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Stock Based Compensation (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended			9 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Weighted average remaining contractual life	1 year 7 months 28 days	2 years	2 years 1 month 6 days
Change increases the loss per share					$ (0.01)
Minimum [Member]
Change increases the loss per share					(0.46)
Maximum [Member]
Change increases the loss per share					$ (0.47)
Stock Options [Member]
Expected dividend yield				0.00%
Stock-based compensation expense				$ 300
Weighted average remaining contractual life				2 years
Unvested stock-based compensation expense					$ 273

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Stock Based Compensation - Schedule of Fair Value of Options Granted (Details) - Options [Member]	9 Months Ended
	Jun. 30, 2020 $ / shares
Risk-free rate of interest	1.60%
Expected dividend rate	0.00%
Minimum [Member]
Exercise price	$ 0.80
Expected term (years)	6 months
Expected stock price volatility	108.80%
Maximum [Member]
Exercise price	$ 4.00
Expected term (years)	4 years
Expected stock price volatility	188.60%

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Stock Based Compensation - Summary of Stock Option Activity (Details) - USD ($)	3 Months Ended			9 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2020
Compensation Related Costs [Abstract]
Number of Options, Outstanding Beginning Balance	4,747,916	4,472,916	3,210,416	3,210,416
Number of Options, Granted		275,000	1,262,500
Number of Options, Outstanding Ending Balance	4,747,916	4,747,916	4,472,916	4,747,916
Number of Options, Vested and Exercisable	4,435,416			4,435,416
Weighted Average Exercise Price, Outstanding Beginning Balance	$ 2.03	$ 2.09	$ 2.45	$ 2.45
Weighted Average Exercise Price, Granted			1.19
Weighted Average Exercise Price, Outstanding Ending Balance	2.03	$ 2.03	$ 2.09	2.03
Weighted Average Exercise Price, Vested and Exercisable	$ 2.10			$ 2.10
Aggregate Intrinsic Value, Beginning Balance
Aggregate Intrinsic Value, Ending Balance
Aggregate Intrinsic Value, Vested and Exercisable
Weighted Average Remaining Contractual Term, Beginning Balance	1 year 7 months 28 days	2 years	2 years 1 month 6 days
Weighted Average Remaining Contractual Term, Granted			2 years 3 months 19 days
Weighted Average Remaining Contractual Term, Ending Balance	1 year 4 months 28 days	1 year 7 months 28 days	2 years
Weighted Average Remaining Contractual Term, Vested and Exercisable	1 year 4 months 24 days

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Stock Based Compensation - Schedule of Stock-based Compensation Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Total stock-based compensation	$ 6	$ 4,130	$ 1,913	$ 4,675
Stock Grants [Member]
Total stock-based compensation	6	3,995	1,193	5,991
Stock Options [Member]
Total stock-based compensation		135	615	478
Warrants (Liability) [Member]
Total stock-based compensation			$ 105	$ 697

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Commitments and Contingencies (Details Narrative) - USD ($)		1 Months Ended			3 Months Ended		9 Months Ended
	Jun. 05, 2020	Jul. 31, 2020	Jun. 30, 2020	Jan. 31, 2019	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Acquisition of licenses and permits							$ 2,500,000
Number of shares agreed to issue				250,000
Number of options agreed to issue				250,000
Professional Fees					$ 257,000	$ 418,000	1,780,000	$ 1,269,000
Joint venture amount		$ 307,500
Excess of its commitments		$ 1,000,000
Six Month Consulting Agreement [Member]
Number of shares issued for services			$ 350,000
Cash compensation			$ 100,000		100,000		100,000
Number of restricted securities			350,000
Six Month Consulting Agreement [Member]
Number of shares issued for services			$ 100,000
Cash compensation			$ 10,000		$ 10,000		$ 10,000
Number of restricted securities			100,000
Chord Advisors LLC [Member]
Professional Fees	$ 260,000

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Subsequent Events (Details Narrative) - USD ($)		1 Months Ended	9 Months Ended
	Jul. 02, 2020	Jul. 31, 2020	Jun. 30, 2020
Debt instrument, maturity date			Dec. 27, 2020
Debt instrument, interest rate			8.00%
Paycheck Protection Program [Member]
Proceeds from loan			$ 266,820
Debt instrument, maturity date			May 01, 2022
Debt instrument, interest rate			1.00%
Subsequent Event [Member] | Maximum [Member]
Sale of stock, share	10,000,000
Subsequent Event [Member] | Paycheck Protection Program [Member]
Proceeds from loan		$ 220,564
Debt instrument, maturity date		Jul. 09, 2022
Debt instrument, interest rate		1.00%